19 Jun 2014
Post-Fed market reaction suggests many expected a more hawkish stance - Deutsche Bank
FXStreet (Łódź) - Jim Reid from Deutsche Bank comments on yesterday's Fed interest rate decision and the dovish tone of the press conference, saying that with a lack of surprises here attention shifted to the Economic Projections revealing downward revisions to employment and GDP forecasts.
Key quotes
"The direction of those changes was largely expected by markets. There were no significant changes to the inflation forecasts, but we should note that the Economic Projections were likely submitted before the most recent CPI report."
"The Fed’s much-discussed dot plot showed a subtle upward drift in rate projection medians. (...)Indeed, given that Yellen continued to downplay the importance of the dots at her press conference yesterday, perhaps their usefulness to markets may be overplayed."
"The rest of the Fed Chair’s comments contained very little for the hawks – views on the valuation of financial assets were relatively sanguine (she didn't think equity valuations were stretched) and Yellen again steered clear of providing guidance for when to expect the first rate hike after QE ends."
"For the doves, Yellen reiterated that the Fed’s balance sheet will remain large 'for some time' and that discussions around exit strategy were 'in no way intended to signal any imminent change' in policy."
"So with the Fed and Fed Chair delivering very little in terms of surprises, the post-FOMC market reaction suggested to us that there was a good proportion who had expected the Fed to be more hawkish. This will likely encourage the search for yield and the low volatility environment to continue for a while yet."
Key quotes
"The direction of those changes was largely expected by markets. There were no significant changes to the inflation forecasts, but we should note that the Economic Projections were likely submitted before the most recent CPI report."
"The Fed’s much-discussed dot plot showed a subtle upward drift in rate projection medians. (...)Indeed, given that Yellen continued to downplay the importance of the dots at her press conference yesterday, perhaps their usefulness to markets may be overplayed."
"The rest of the Fed Chair’s comments contained very little for the hawks – views on the valuation of financial assets were relatively sanguine (she didn't think equity valuations were stretched) and Yellen again steered clear of providing guidance for when to expect the first rate hike after QE ends."
"For the doves, Yellen reiterated that the Fed’s balance sheet will remain large 'for some time' and that discussions around exit strategy were 'in no way intended to signal any imminent change' in policy."
"So with the Fed and Fed Chair delivering very little in terms of surprises, the post-FOMC market reaction suggested to us that there was a good proportion who had expected the Fed to be more hawkish. This will likely encourage the search for yield and the low volatility environment to continue for a while yet."