Our analysis on the recent FOMC press conference transcript identifies that financial conditions remain more of concern for the Fed when setting policy. Our sentiment indicator for financial conditions clearly shows that negative sentiment over financial conditions remained elevated for the 2nd consecutive meeting. The Fed has talked about credit markets a lot more at the last two policy meetings.
We have also identified that the Fed has significantly cut back references to forward guidance at this week’s policy meeting. We believe this reflects more uncertainty over the need for further rate hikes going forward, and/or heightened uncertainty over the policy outlook going forward at the current juncture.
The text analysis supports our view that the Fed has delivered their final rate hike in this cycle. It is clearly shifting in a less hawkish policy direction. The ongoing shift in Fed policy expectations should encourage further USD weakness going forward.
- MUFG Strategy
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