Fed: “Just Below” remarks not revelatory - Westpac

According to Richard Franulovich, head of FX strategy at Westpac, Chair Powell’s remark that interest rates are “just below” the range of estimates for neutral does not seem revelatory  with Fed Funds being just one hike from reaching the bottom end of the 2.5%-3.5% dot plot range.

Key Quotes

“But it is nevertheless a marked departure from his Oct 3 comments when he said, “we may go past neutral, but we're a long way from neutral at this point, probably”. Powell's observation that the impact of rate hikes is, “uncertain”, and that, “we will be paying very close attention to what incoming economic and financial data are telling us”, echoing Clarida’s “data dependence”, add to the caution.”

“The data continues to cool too; the 9% fall in new home sales and softer detail in the Dallas & Richmond PMIs this week add to the impression the US is downshifting after the break neck pace of 3.9% in Q2 and Q3.”

“Until the Fed sheds its more cautious tone and the data stabilise we shift to a negative week and month ahead USD bias, though maintain a bullish 3mth outlook, with the Fed likely to ultimately deliver more than what’s priced in.”