A note from Mohamed El-Erian about this week's FOMC meeting
El-Erian is the chief economic adviser of Allianz, and was briefly considered late last year as a potential candidate for the Fed's vice-chair post. He's overall a great personality, and is constantly out there giving his thoughts via Twitter or LinkedIn.
Anyway, he says that this week the Fed is likely to reinforce the notion of three rate hikes this year, and these are the six things he highlighted to note about the meeting:
- Fed officials are likely to shrug off the Q4 GDP headlines, and instead focus on the stronger internal figures - particularly investment and consumption
- Global growth synchronisation and recent inflation dynamics (depreciation in the dollar also supports this outlook) will solidify the baseline guidance of three rate hikes this year
- Market observers may see that the risk to the Fed's rate hike cycle as more to the upside, but the Fed will see those risks as balance on both sides (more hikes or less hikes) for the time being
- There is not likely to be anything new or notable in relation to the Fed's balance sheet reduction plan
- More attention will need to be given to the economic and market impact of the Fed's policies, especially those on other market valuations - as well as the ECB and BOJ policy changes - but the Fed will likely not publicise these matters in a notable fashion
- Since it is Yellen's final meeting, she will likely receive lots of accolades from her colleagues and she has set in place a good platform for Powell to succeed as the next Fed chair
The Fed meets on 31 January, with no changes to policy is expected from the meeting. The market is expecting the next hike to come in the March meeting, but there are some quarters expecting the Fed to take a more hawkish tone in this week's meeting.
