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Sonia Meskin, US economist at Standard Chartered, notes that the FOMC’s March Summary of Economic Projections (SEP) has reflected a change in the bank’s reaction function.

Key Quotes

“Even with real growth projected to remain above potential in 2019, we believe the FOMC will not hike again in this business cycle as it prepares its tools for the next downturn.”

“To reflect the FOMC’s policy shift, we adjust our call for the federal funds target rate (FFTR) to zero hikes in 2019 from two previously; we continue to expect no hikes in 2020. We also lower our US growth projection to account for the drag from the government shutdown and the potential impact of weaker global growth and sentiment.”

“Finally, we lower our inflation forecast on lower energy prices and a weaker global inflation impulse than we expected earlier.”

“We believe the FOMC’s pivot reflects its strong desire to avoid this risk.   Otherwise, as we expected, it announced plans to gradually wind down the balance-sheet taper, and end it completely around Q3-2019, for the steady-state size of roughly USD 3.6 tn.”