Fed: Reduced market pricing for the path of withdrawal - Westpac

“Trumponomics” unwind and lowered growth expectation had reduced market pricing for the FOMC’s path of withdrawal, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“The pick up in rates post the June FOMC meeting has not been challenged by the publication of the Minutes. Policy remains accommodative and the Fed see little reason to depart from their steady withdrawal and balance sheet normalisation plans.”

“The Committee now see “changes to fiscal and other government policies... [presenting] both upside and downside risks to the economic outlook”. The unwind of Trump upside may have been excessive, however, the lack of core inflation pressures and low growth expectations should limit current rate rebounds. This should also leave USD at risk of faltering again, especially should Trump instigate any trade disputes.”

“The FOMC’s path of withdrawal should provide a floor for USD, but low inflation and Trump trade risks still suggest that DXY may continue to slide towards 95.”