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“Fed Chair Jerome Powell has repeated comments that economic ‘cross-currents’ require a ‘patient’ approach to monetary policy. But unlike the market, we believe the risks remain skewed to higher interest rates eventually,” notes ING’s chief international economist James Knightley.

Key quotes

“Today’s narrative suggests the Fed will be in no hurry to adjust its neutral policy stance, indicating that we could be in for a prolonged period of policy stability.”

“In terms of the outlook for interest rates, markets believe that the Fed’s neutral stance will eventually give way to policy easing. Fed funds futures contracts are pricing in a 25bp rate cut by the summer of 2021, but we continue to believe that the next move is more likely to be an interest rate increase. After all, the economy is running pretty strongly with little spare capacity, and this is generating rising wage pressures in the labour market, which should keep consumer confidence and spending supported.”

“If we do get decent economic performance as we expect, in an environment of rising inflation pressures and decreasing trade concerns, we believe the Federal Reserve will overcome its current reticence and hike rates 25bp during the summer.”