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Nov 29 - 05:00 PM
USD: Market Over-Interpreted Fed Powell's Comments - Danske
First appeared on eFXplus on Nov 29 - 11:45 AM

Danske Research discusses the USD outlook in light of Fed's Powell comments yesterday.

Last night, Fed Chair Powell said that the Fed funds rate is ‘just below’ the neutral rate. Considering the comments from October where he said that the Fed funds rate was a ‘long way’ from the neutral rate, this was perceived quite dovishly by markets and risky assets performed strongly with tighter credit spreads, stronger equity markets, a weaker US dollar and lower yields as the market priced out the probability of a second rate hike in 2019...Investors might even think that the Greenspan put is back," Danske notes. 

However, the market might over interpret the comments. What Powell actually said was that the Fed funds rate is ‘just below the broad range’ (our emphasis) of estimates of the neutral rate, which was 2.50-3.00% in the latest FOMC projection. And remember, the upper target range is 2.25% at the moment. Of course, it is different from his comment in October but that comment also seemed odd at the time, both compared to other Fed comments and due to the fact that the projections are exactly the same (last update was in September).

We still believe the Fed is keen on getting to neutral and stick to our call that it is going to hike next month and in March and June, where the Fed funds rate would then be 3.00%. A final hike on top of that cannot be ruled out," Danske adds. 

Danske Research/Market Commentary


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