In view of Elliot Clarke, Research Analyst at Westpac, confidence in the real economy is also critical for the US as the market has taken recent communications by FOMC officials as dovish overall, resulting in a paring back of near-term expectations for policy.
Key Quotes
“For us, the ‘dovish’ remarks of the Committee are merely recognition that neutral is nearing and the growth cycle maturing, not that policy will shift abruptly.”
“Westpac remains of the view that, following a rate hike at their December meeting, the FOMC will increase the federal funds rate a further three times in 2019 to a September peak of 3.125%.”
“At this level, the stance of policy will be mildly contractionary, but still accommodative enough to allow growth to persist at trend given the underlying strength of the US labour market.”
“October’s weak durable goods orders and shipments update was in line with our view that growth in business investment will weaken over the coming year. However, as long as the consumer remains robust, which labour market strength and household wealth currently point to, the FOMC is unlikely to waver.”
“Global risks are being watched, but will only affect policy if/ when they threaten domestic momentum.”
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