Search ForexCrunch

According to Sean Callow, Research Analyst at Westpac, this week’s FOMC statement provided another example of the Fed’s lack of imagination in choosing adjectives.

Key Quotes

“The June statement already included 4 uses of “strong” or “strongly” to describe aspects of the economy. So the choice of “strong” in the opening sentence to describe the pace of economic expansion was hardly original. But it replaced “solid”, implying that the FOMC was quite impressed with the advance Q2 GDP report released last Friday.”

“This showed an eye-catching 4.1% annualized pace. If reported in the same manner as Australia and most other countries, the headline growth rate would have been 1.0%qtr, 2.8%yr, not so remarkable (Australia printed 1.0, 3.1% in Q1) but heading in the right direction. Q3 is shaping up fairly well too and with the unemployment rate around 18 year lows and fiscal stimulus still flowing through, the Fed looks intent on raising rates again, brushing aside concern over trade disputes.”

“Futures markets this year have steadily priced in faster Fed rate rises for 2018-19. Westpac looks for moves in both Sep and Dec, to 2.25-2.50% by year-end. Pricing is not far behind, with 41bp priced in by end-Dec. This pricing suggests the US dollar is more likely to consolidate near term rather than push sharply higher, with the July employment report to reaffirm the Fed’s view of “strong labor market conditions” and the data calendar then turning quiet for a while.”

“But the prospect of quarterly Fed hikes to June 2019 and the return of the 10 year T-note yield to 3% surely limits the downside for USD/majors multi-month.”