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Elliot Clarke, Research Analyst at Westpac, suggests that the recent comments by Chair Powell were taken as dovish by the market, the US 10-year touching the 3.00% level having started the week at 3.04%.

Key Quotes

“Since then however, the 10-year has come back to 3.03%, leaving it effectively unchanged for the week. While Chair Powell did reference the federal funds rate as being “just below” estimates of neutral, context is key. ‘Estimates of neutral’ here refers to the 100bp range from 2.5% to 3.5% put forward by FOMC members, hence attaining a neutral stance could mean one hike or five.”

“We expect that the total number of hikes to come is likely nearer the top of that range than the bottom. Our forecast is for four more, from December 2018 to September 2019. As per the FOMC’s own view, this forecast rests on the strength of underlying momentum in their economy, driven by the consumer. There are, of course, risks to this view. Chief among them are household wealth and sentiment and, for the business sector, the uncertainty created by US trade policy.”