Fed: Markets are pricing too dovishly - Danske Bank
|Today the Fed kept rates unchanged as widely expected. According to analysts from Danske Bank, the Federal Reserve will raise rates in December (2018), March and June (2019), until reaching 3%, and then one more time during the second half of 2019.
Key Quotes:
“We maintain our long-held view that the Fed is on autopilot and neutral is the destination. Based on speeches from the FOMC members, most are eager to raise the Fed funds rate to 3%, which is the Fed’s estimate of the neutral rate, where monetary policy is neither expansionary nor contractionary. We believe the bar for the Fed to change its strategy is quite high, as the real economy is strong, optimism is high, inflation is on target, the unemployment rate is below NAIRU, wage growth is increasing and fiscal policy is expansionary.”
“We expect the Fed to hike at the meetings in December, March and June, when it would reach the 3%. After that, we believe it will be more stop and go depending on how the economy is doing. We expect the Fed to hike once more in the second half of 2019, i.e. a total of four hikes from now until year-end 2019. In our view, markets are pricing too dovishly.”
“No news from FOMC is not particularly good news for US treasuries, as the Fed remains on autopilot for 3%. Short-term risk appetite sets the direction but the underlying trend is still towards higher US treasury yields. We continue to target 3.50% on a three- to six-month horizon.”
“EUR/USD a tad lower on the no-surprises Fed announcement and we still look for USD strength to remain towards year-end on the carry and cyclical support the greenback is set to enjoy for some time still.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.