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US: FOMC, advance estimate of Q1 GDP The FOMC statement on Wednesday was only slightly more hawkish than our expectation, in that it deleted its previous statement that “global economic and financial developments continue to pose risks,” which presumably reflects the better tone of Chinese data recently, and the softer dollar.

However, the Committee added that they are closely monitoring global economic and financial developments, which seems to suggest they are not sure the good news is set to last. Removing the reference to global risks was also probably an attempt to keep the overall balance of the statement more or less unchanged, because the domestically-focused part of the current assessment was more dovish than six weeks ago, with growth in economic activity appearing “to have slowed.

” There was no explanation for the domestic weakness from the Fed. The Committee seems a bit puzzled as to why household spending has moderated, since it said households’ real income has risen at a solid rate and consumer sentiment remains high. References to the labor market remained upbeat. In our view, weaker consumption, soft investment and soft exports all add up to risks to the rosy labor market picture. In terms of the next rate move, there was a distinct absence of teeing up a hike in June.

Indeed, it is difficult to see how a hike could be delivered, despite reduced external risks, until the economy takes on a more positive tone. That doesn’t look likely in the short run. The market’s pricing of the probability of a rate hike in June was broadly unchanged following the release of the statement. We continue to think that slower domestic economic growth and elevated uncertainty will keep the Fed on hold throughout 2016. For our full write-up, see: US FOMC: Less risk, less growth, more monitoring.

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