Friday March 17, 2017 - 21:35:57 GMT
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Fed Market Dominance Not Fading
John M. Bland, MBA
As Long Predicted, Fed Hikes Rates We had been predicting here a March 15 rate hike since market odds were below 20% for a Fed Funds 25bp increase. As expected, the Fed went through with a 25bp rise and left the door open to two additional hikes, conditions permitting. The target range for funds was increased from 0.50-0.75% to 0.75-1.00%. In its open market operations, the Fed tries to hit the mid-point of that range.
Financial markets are never to be satisfied. Some were disappointed that the tone of the Fed Chair Yellen's comments were not more hawkish. The current Fed goal is gradually to "normalize" monetary policy as smoothly as possible as excessive ease is gradually taken out of the system. Traders did not like the use of words like "gradual" and "cautious", but that is what they are likely to continue to get from the Fed Chair. The last thing she wants is to move too fast and then have to try to pump up the economy again. She mentioned their "dot" forecast for Fed Funds (mid-range) of 1.40% at yearend and 2.40% at the close of 2018. Those forecasts are roughly unchanged from a quarter ago. Markets are well on their way to pricing in a June rate hike (60% odds).
Disappointment over the cautious policy stance of Fed Chair Yellen saw the USD fall for two days against the EUR and the yield on the 10-yr note fall from a high of 2.63% earlier in the week, to just below 2.50% late Wednesday. Equities have gained modestly.Traders should get over their disappointment about the policy announcement early into the week ahead. They tend to have very short memories
European Central Bank Policy In Play? Late Thursday, the ECB's Nowotny (Austria) roiled the markets when he hinted that an interest rate increase may be on the way in the euro area, and that the deposit rate may rise before the main refinancing rate. Markets have not been prepared yet for an ECB tightening. The Nowotny comments might have been an early effort to plant the seed of an idea. Almost no one feels that negative interest rates are still appropriate anywhere.
WEEKLY Forex Economic Calendar:
21 Mar Tue
09:30 GB- CPI
13:30 CA- Retail Sales
22 Mar Wed
14:00 US- Existing Homes Sales
15:30 US- EIA Crude
21:00 NZ- RBNZ Decision
23 Mar Thu
09:30 GB- Retail Sales
12:30 US- Weekly Jobless
14:00 US- New Homes Sales
24 Mar Fri
All Day flash PMIs
12:30 CA- CPI
26 Mar Sun
00:00 EZ/GB Clocks + One hour
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founding partner www.global-view.com
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