BoA - Federal Reserve dovishness is not sustainable, sudden shift could shock markets

Author: Eamonn Sheridan | Category: Central Banks

Bank of America / Merrill Lynch warn there is a risk of both Fed and ECB policy mistakes 

We believe that the Fed's dovish tone is not sustainable

  • getting concerned that a sudden shift could shock markets

BoA couch their concerns in Fed assurances they will not be proactive and will wait for improving data to show, but says BoA:

  • the US economy is already booming, with data (NFP and ISM last week) well above expectations
  • Vaccination is also accelerating even faster than expected

BoA do note though:

  • To be fair, the market is already pricing Fed policy normalization, but our rates strategists believe that the Fed could start later and move faster than markets expect 

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I'll post on BoA ECB thoughts separately

ps. Powell's weekend comments were quite sanguine:

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