Friday March 23, 2018 - 14:27:47 GMT
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The Federal Reserve Hikes Rates, While The Bank Of England Signals A Tightening
John M. Bland, MBA, co-founder, Global-View.com
New Fed Chief Gets High Marks For His First Presser Performance As expected, the U.S. Federal Reserve raised its target range for Fed Funds by 25bps to 1.50-1.75% on Wednesday March 21. With the rate hike fully priced in by the markets, the focus of traders was more on what will be coming next. Markets get an inkling about what FOMC decision-makers are expecting in the future from their quarterly “dot plots”, which are individual member forecasts of key economic parameters, including the Fed Funds rate, for the upcoming three years.
Markets were keenly watching to see if the members expected two or three additional rate hikes this year. Many were hoping for three more hikes this year after Wednesday’s hike, but they kept to a cautious two more hikes for the year (for a total of three). They raised rate hike forecasts for 2019 and 2020, but the markets focused more intently on the 2018 outlook. It is important to point out that the “dot plots” are not policy. They are only intended to provide a sense of the current thinking of individual FOMC members. They said that the current equilibrium Fed Funds rate is 2.75%. It is worth pointing out that FOMC members consistently have over-estimated the strength of the economy over the past five years or so. He consistently emphasizes that the Fed is on a “gradual” tightening path.
Fed Chair Powell had a dovish tone to his press conference. He said there is “no sense in the data we are on the cusp of' an inflation surge”, while the neutral rate of interest is “still quite low.''
The Bank Of England Keeps Rates Steady As Expected on Thursday March 22 At its latest meeting, the Bank Of England Policy Board voted 7-2 to keep its Repo rate steady at 0.50%. The two dissenters voted raise rates by 25bps. The previous vote had been 9-0 for no change. BOE observers saw the 7-2 vote was a signal that Central Bank will certainly be hiking rates in May by 25bps.
All MPC members agreed that further rate increases would to be “gradual”. They felt an ongoing tightening of monetary policy over forecast period would be needed to return inflation to target. They indicated that pay growth is expected to pick up further. Also that currency (GBP) strength since February partly reflects newly announced Brexit transition deal progress.
GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium
Sun 25 Mar 2018
Europe and UK Clocks Advance One Hour
Mon 26 Mar 2018
Tue 27 Mar 2018
B 14:00 US- Richmond Fed
Wed 28 Mar 2018
AA 12:30 US- GDP
A 14:00 US- CB Consumer Confidence
A 14:30 US- EIA Crude
A 12:30 US- EIA Crude
Thu 29 Mar 2018
A 8:55 DE- Jobless
AA 9:30 GB- GDP
A 12:30 US- Weekly Jobless
A 12:30 US- PCE Deflator
A 14:00 US- Final Univ of Michigan Survey
Fri 23 Mar 2018
US and Others Holiday
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