State Street Comments on Federal Open Market Committee Meeting

In reaction to today’s US Federal Open Market Committee (FOMC) meeting, Lee Ferridge, head of Multi-Asset Strategy, Americas at State Street Global Markets and Antoine Lesné, head of EMEA strategy and research for SPDR ETFs, offer their views.

Ferridge commented, “As was widely expected the FOMC raised rates by 25 basis points on Wednesday. However, arguably more important, it also signaled a more aggressive rate path for the remainder of 2018 by adding a fourth hike to its 2018 outlook. Speculation a fourth “dot” would be added this year has been a consistent theme throughout 2018, but confirmation it will indicates that the majority of the committee is less comfortable with this stance than previously suggested. This decision is only likely to add to the woes of emerging market currencies. It could also provide the US dollar with a renewed boost against its G3 counterparts as short-end interest rate differentials could widen further in the coming weeks, particularly if the European Central Bank (ECB) does not outline an end to its quantitative easing program at its own policy meeting on Thursday.”

Lesné commented, “Unsurprisingly the FOMC raised rates by 25 basis points on Wednesday,  the surprise, however, came from the “dot” plot that indicated a potential fourth hike for 2018, contradicting recent FOMC speeches. This may cause the bond market yield curve to further flatten, but would not necessarily signal an imminent end to the cycle. Nevertheless the market may re-assess the impact on risk assets on the back of such continued divergence in monetary policy versus other developed markets. Thursday’s ECB meeting will now be of even more importance. In the meantime flows to shorter dated bonds may continue to be positive.”