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17 Mar 2016
Fed's cautiousness has sent the dollar reeling - BBH
Research Team at BBH, suggests that the Federal Reserve's cautiousness has sent the dollar reeling.
Key Quotes
“The Fed's backtracking to two hikes this year from four is still met with skepticism by the market. It previously had a June hike nearly discounted but that has now been pushed out until September.
With a backdrop of BOJ, and ECB, and PBOC easing policy, and the Federal Reserve reducing the number of hikes it anticipates, the recovery from the turbulent start to the year continues.
The markets have mostly responded to what is generally seen as a dovish Fed statement and forward guidance. That said, the market is even more dovish. Four things stand out to us. First, Fed officials need to see greater evidence of the US economy's resilience to the global economic and financial developments. Second, Fed officials are concerned that the recent acceleration of inflation is temporary.
Third, its general assessment of the US economy is little changed since December, but its confidence in it appears to have weakened. Fourth, with the combination of shaving the growth forecast and lowering the unemployment estimate, Fed officials appear resigned to weaker productivity and growth for a longer period. This is also partly reflected in the projection of a lower terminal rate for Fed funds (3.25% from 3.5%). It would not be surprising to see this shaved further in the quarters ahead.”
Key Quotes
“The Fed's backtracking to two hikes this year from four is still met with skepticism by the market. It previously had a June hike nearly discounted but that has now been pushed out until September.
With a backdrop of BOJ, and ECB, and PBOC easing policy, and the Federal Reserve reducing the number of hikes it anticipates, the recovery from the turbulent start to the year continues.
The markets have mostly responded to what is generally seen as a dovish Fed statement and forward guidance. That said, the market is even more dovish. Four things stand out to us. First, Fed officials need to see greater evidence of the US economy's resilience to the global economic and financial developments. Second, Fed officials are concerned that the recent acceleration of inflation is temporary.
Third, its general assessment of the US economy is little changed since December, but its confidence in it appears to have weakened. Fourth, with the combination of shaving the growth forecast and lowering the unemployment estimate, Fed officials appear resigned to weaker productivity and growth for a longer period. This is also partly reflected in the projection of a lower terminal rate for Fed funds (3.25% from 3.5%). It would not be surprising to see this shaved further in the quarters ahead.”