The Fed is done – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, points out that the FOMC has unexpectedly removed the tightening bias from its policy statement yesterday, supporting their view that the rate hike cycle is over.

Key Quotes

“While we felt some further dovish tweaks to the statement were possible, the removal of the reference to ‘further gradual increases’ in rates was a surprise at this early stage, as was the switch to neutral language surrounding ‘future adjustments’ in rates – suggesting the next move could be up or down. This paves the way for a further fall in the FOMC dot plot interest rate projections when they are updated in late March.”

“In the press conference, Chair Powell sounded a dovish tone, contrasting a sanguine view of the broad macro picture in the US with a further reference to ‘cross-currents’ that pose risks to the outlook. These range from weakening growth in China and Europe, to the government shutdown (and the potential for further shutdowns), and uncertainty related to Brexit and the US-China trade negotiations.”

“While the Fed is signalling a somewhat quicker end to the balance sheet normalisation, it emphasised its resolve to use the fed funds rate as the primary means to provide policy accommodation in any future downturn.”

“In other words, rates would likely have to hit the zero lower bound before the Fed uses the balance sheet to ease policy, be that through the composition or through net asset purchases.”