Federal Reserve Chairman Jerome Powell has repeatedly played down the central bank’s “dot plot” as a guide to future interest rates, but traders will take it as the most important signal to gauge Fed's policy for second half of the year.
- The FOMC was evenly split in March when it projected three hikes this year. Hence, with just one participant switching to four hikes could shift the median of the committee.
- There is a risk that the dots may go up and not down, as there has been enough strength in the economy to tilt towards more tightening.
- Accelerating growth and rising inflation to target may argue for a more aggressive tightening, while lackluster wage increases and fragile emerging markets would suggest caution.
- The tone of the press conference will be important, but we think Powell will likely strike a balance and will not be eager to raise faster or slower,
- A surprisingly large slump in new credit in China last month suggests China’s deleveraging agenda is gaining traction as the drop in shadow bank lending was particularly sharp. This is negative to Australia economy.
Fullerton Markets Research Team
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