FOMC sticks to its plan
The Fed sticks to its rate normalisation and sees recent inflation data as transitory, writes Stephanie Lindeck, Economist, Julius Baer
The FOMC minutes of its 14 June meeting published yesterday revealed that the Fed is confident with its rate normalisation plans and the reduction of the balance sheet. However, recent weak inflation data keeps some of the Fed members puzzled.
The Fed is convinced that the dip in inflation readings is only transitory but if things turn out otherwise, the central bank would adjust its tightening plans.
Implied probability in the Fed fund futures has shifted forward, as markets had expected a softer notion in the statement and underestimated the Fed’s determination with its tightening plans.
We stay confident in our forecast that the Fed will raise rates in December again and see the US dollar profiting from too low market expectations, while equities remain supported by the favourable growth backdrop and earnings.