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Quick takes: FOMC leaves monetary policy intact, upgrades US growth assessment

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The Federal Reserve's policy arm, the Federal Open Market Committee (FOMC), announced no changes to monetary policy Wednesday after a two-day meeting. It also upgraded its assessment of US growth while acknowledging stronger disinflation and international developments.

The Federal Reserve's policy arm, the Federal Open Market Committee (FOMC), announced no changes to monetary policy Wednesday after a two-day meeting. It also upgraded its assessment of US growth while acknowledging stronger disinflation and international developments.

Here are some economists' comments:

UOB:

"We continue to expect the Fed rate normalisation to take place in 2Q-2015 (possibly starting in the 16-17 June 2015 FOMC) but we continue to look for signs whether the Fed is torn between strong jobs data and further decline in headline inflation due to falling oil prices.''

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Market voices on:

Citi (U.S. Economic Views):

"Now, with the continued use of the word "patience" to characterize when the Committee may begin to normalize its policy stance, we can infer that at least two more meetings will transpire before we can expect to see a change.''

"The induced lower inflation, and higher uncertainty about the underlying strength of the recovery both act to defer the date of liftoff and/or the aggressiveness of subsequent rate increases. We stand pat on our second half of 2015 call, with December continuing to be our preferred meeting for liftoff.''

Rabobank:

"This means that they don't expect to hike for at least the next couple of meetings.''

"The continued reduction in various measures of unemployment and stable inflation expectations in consumer surveys are still giving the FOMC the confidence that over time inflation will move back to target. This implies that they are still thinking of a mid-2015 rate hike."

"However, rapid disinflation, wage deceleration and depressed market inflation expectations are testing the confidence of various FOMC participants. Also, corporate America is starting to feel the headwinds from a weaker global economy and a stronger US dollar. In our view, the FOMC will not be able to tick all the boxes by summer, which will lead to a delay in the first rate hike from mid-2015 to 2015Q4, similar to the delay in tapering in 2013.''

Citi (EM Asia FX & Rates Strategy):

"This nuanced message both highlighted the wide divergence in policy intentions, and raised questions about the impact of slow demand growth in tradables. Since the FOMC release, US equities dropped 1.5%, US yields are 4-7bp lower and flatter (2015 rate hike expectations were trimmed by 5.5bp), commodity prices are softer & credit spreads wider, the dollar is stronger (except vs. the yen), and EM currencies have uniformly sold off. This is a 'risk-off' move from a market unsure of the policy trajectory.''

"This underscores that the trends established already this year may remain in play: despite being expensive, duration will likely remain bid (except in vulnerable markets such as Malaysia), while FX should remain choppy, keeping us convinced of the merits of positioning via RV trades. With the FOMC also now behind us, we remain confident of our 10y KRW IRS receiver, of being overweight duration (but not fx) in Indonesia, and we continue to look to add duration risk in Thailand. In FX, we still expect MYR will underperform THB, and that KRW will outperform JPY.''

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