Thursday June 14, 2018 - 17:31:54 GMT
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Fed More Hawkish Than Expected. ECB Disappoints
John M. Bland, MBA, co-founder, Global-View.com
Eventful Fed Meeting Sees Key Changes As expected, on Wednesday, the Fed raised its target range for Fed Funds by 25bps to 1.75%-2.00%.This change had been fully priced in by the markets well ahead of time. With the rate hike already discounted, the main focus of markets was on the Fed’s the forward guidance . The Fed policy statement continued to indicate that the pace of future tightening would be “gradual” and that “further” increases are likely. The Fed has been making clear its view that it sees 2.50% to 3.00% as the “equilibrium” level for Fed Funds. The newest “dot plot” of FOMC member interest rate forecasts indicated that most now expect two more 25bp interest rate hikes this year. That would make four hikes when all is said and done for the year. Three further hikes are expected in 2019 and only one in 2020. Overall, the message from today’s meeting is mixed as the Committee expects to raise rates at a slightly faster pace than before. The expected end point was unchanged.
There were also some significant changes to the press statement compared to the previous meeting in March. As expected, the statement was upbeat about recent economic developments, consistent with the fact that most economic data has surprised on the upside. More notably, there were also some significant changes to the forward guidance on policy in the statement. In particular, while still stating that monetary policy remains “accommodative” for now, the Committee removed the previous reference to interest rates remaining “for some time below levels that are expected to prevail in the longer run”. This is consistent with the slightly faster pace of interest rate rises that are now predicted.
Fed Chair Powell said that the economy is doing very well. He said that changes to the guidance reflected the fact that interest rates may soon be back to their estimated neutral level. He also started to make his mark on the Fed by announcing that from January 2019, a press conference will be held after every meeting. Furthermore, in a technical tweak, the Fed lowered the IOER (Interest On Excess Reserves) to 5bps below the top of the Fed Funds target range.
ECB Disappoints Markets On Thursday, the ECB disappointed traders who for some reason had been hoping for more. It is unclear what else they might have gotten from the central bank as unexpectedly the central bank announced a reduction in QE for the October to December quarter to EUR15bln from EUR30bln.The EURUSD fell sharply on the decision after President Draghi indicated that the ECB was unlikely to raise interest rates until summer 2019. The EURUSD tumbled on the news.
GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium
Tue 19 June 2018
A 12:30 US- House Permits/Starts
Wed 20 June 2018
A 14:00 US- Existing Homes Sales
A 14:30 US- EIA Crude
Thu 21 June 2018
AA 11:00 GB- Bank of England Decision
A 12:30 US- Weekly Jobless
Fri 22 June 2018
A Flash PMIs
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