Friday June 16, 2017 - 17:35:38 GMT
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Surprisingly Hawkish Signals From Fed Chair Yellen
John M. Bland, MBA
Fed Hikes Funds Rate By 25bp As Expected, But Surprises On Taper Announcement The Fed announced a 25bp hike in its Fed Funds target range of 0.75%-1.00% to 1.00%-1.25%. This was the third interest rate increase the past three months. A 25bp rate hike had been widely expected at this meeting. There is no doubt that the pace of rate hikes has accelerated recently. Markets feel the Fed would like to hike rates three times this year and three times in 2018. Their ultimate goal is to raise rates to what it perceives to be the long term equilibrium rate of 3.00%.
Traders had been set up for a dull session Wednesday, especially after the much weaker than expected U.S. Retail Sales and CPI data early in the session. However, the policy announcement was unexpectedly hawkish. In essence, by its actions Fed Chair Yellen told the markets that policy is no longer data dependent. Policy is on a predetermined course for now. The soft data on Wednesday were not the first set of such data, so the markets must assume the decision had been made going into the meeting. The central bank did acknowledge recent indications that inflation has slowed, but continues to express confidence about its 2% target over the medium term.
A second piece of hawkish news Wednesday was the announcement of detailed information about the framework of the official plan to unwind the QE inflated Fed bond portfolio. The plan is expected to start later this year on a small scale and then gradually accelerate. No specific details about the start date were forthcoming other than an indication that it would be starting “soon”, and perhaps as early as September. The tapering will be accomplished by letting existing holdings mature rather than by outright bond sales. The hope is to minimize the impact on the markets while “normalizing” its balance sheet.
Bank Of England 5-3 Vote To Hold Policy Steady Surprisingly Narrows The Bank of England surprised the markets Thursday when it voted 5-3 to hold policy steady. Its previous vote had been 7-1. Some wonder if the acceleration of the Fed policy “normalization” might open the door for cautious initial moves in that direction by the Bank of England and European Central Bank. The Bank of Japan is still far in the rear of the pack when it comes to policy “normalization”.
Amazing Trader EVENT RISK Calendar:
Tue 20 Jun
12:30 US- Current Account
Wed 21 Jun
14:00 US- Existing Homes Sales
14:30 US- EIA Crude
Thu 22 Jun
12:30 CA- Retail Sales
12:30 US- Weekly Jobless
Fri 23 Jun
All Day flash PMIs
12:30 CA- CPI
14:00 US- New Homes Sales
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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