Client note from ANZ in the wake of the Federal Reserve 'on hold' decision
In brief, bolding is mine:
The FOMC tweaked its post-meeting statement leaving the door open for policy normalisation to commence in December
The statement implied that the Fed has become more comfortable with the global backdrop and, that in its view, downside risks have diminished somewhat
In short, if US dataflow remains solid and the global backdrop doesn't deteriorate then this will likely provide the FOMC policymakers with sufficient confidence to hike rates in December
More (bolding, you guessed it, mine)
Perhaps the most critical development since Fed's September policy meeting has been the improvement in financial market conditions:
- USD is marginally stronger
- equity prices have bounced
- volatility has subsided
- emerging markets have shown tentative signs of stabilization
Admittedly, attempting to gauge the impact of potential policy easing by the ECB and recent interest rate cuts by the PBoC on the Fed's reaction function is more difficult
However, the language in the statement suggests that any concerns that Fed has in regards to a stronger USD, have been offset by reduced financial market volatility and the prospect that policy easing in the above economies may act to boost global demand
And:
Importantly, Fed Chair Yellen will have a further opportunity to massage market expectations closer to the next meeting with speeches scheduled in early December.
