The great Fed pivot
Switching from 'further gradual increases' to an overly patient policy stance might potentially be elevating the risk of a more negative shock.
Add BT as a preferred source
SINCE the end of last year, the outlook for monetary policy globally, especially in the US, has changed dramatically. Before the December 2018 Federal Open Market Committee (FOMC) meeting, we noted that a "flatter Fed rate path is probably more prudent than a progressively steeper inclination". Since then, the median federal funds rate projection among Fed participants has fallen from three hikes to zilch for 2019, with (barely) one increase in 2020.
The great Fed pivot has had a similarly significant impact on financial markets broadly. Clearly, the abrupt shift in the policy stance from expecting "further gradual increases" in December to currently being "patient as it determines what future adjustments...may be appropriate" has led to more confusion. In this piece, we attempt to provide some clarity to the ongoing debate and highlight the likely risks to this great Fed pivot.
Essentially, despite a "favourable" or "solid" modal US outlook for 2019, increasing evidence of domestic and global "risks" likely inclined the FOMC toward a "risk management" approach, resulting in a "patient" policy stance currently.
Copyright SPH Media. All rights reserved.
