Friday, April 29, 2016

The Fed’s latest decision and yesterday’s GDP figures

Most market participants were not surprised by yesterday's Federal Reserve decision, whereby once again it maintained its current fund rate within the range of 0.25 per cent to 0.5 per cent. The only surprise was the omission of few words which previously featured within the latest statements issued by the Fed. As said a hike was completely off the table, with the market pricing the probability of a hike at 0.00 per cent over the past days, while pricing a circa 21 per cent probability of a hike in the next meeting. The omitted previous language was 'global economic and financial developments continue to pose risks'. Previously such tone was continuously being highlighted in all statements by the Fed, in which to my understanding such tone was based on the fact that the Fed was unwilling to act in isolation in terms of monetary tightening. The main issue is surely the fact that a hike would probably imply an appreciation in the dollar, which in turn might hinder the path of economic recovery. The slightly more hawkish to dovish tone when considering the omission of the previously mentioned language are in line with the noted growth in real income which has maintained a solid...

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