FOMC meeting to be an upbeat affair - Westpac

It’s likely that Yellen’s last FOMC meeting Wednesday will be an upbeat affair, according to Robert Rennie, Research Analyst at Westpac.

Key Quotes

“Since December, a weaker US dollar; little change in term interest rates; and the passing of tax reform all warrant greater short and medium-term optimism over the outlook.”

“Due to these factors, Westpac has revised its expectations for the Fed. We look for 25bp hikes at the March; June and September meetings. At that point, the fed funds rate will be above neutral and the balance sheet unwind in full effect. This will be an appropriate time to pause and assess.”

“It remains to be seen to what extent further Fed tightening can help to stabilise the plunging US$. However, the USD’s decoupling with yield support has echoes of 2003-2004 when the USD similarly struggled to capitalise on rising yields as the “twin deficits” took hold.”

“It’s a huge week for data and events this week. On top of Yellen’s last meeting, Trump will deliver his first State of the Union address which will set out his agenda into the mid-terms and we will have US employment cost index Wednesday, ISM on Thursday and non-farm payrolls on Friday.”