Asia-Pac stocks rallied strongly overnight on news of the deal signing, with US equity index futures currently green across the board. Unsurprisingly, Brent crude has continued to trade lower, dipping a toe below the widely watched 200-day SMA at US$78, with the USD broadly steady this morning after rallying in the wake of yesterday’s Fed meeting.
Fed’s Warsh Came in Hawkish
It was all about the Fed decision yesterday evening (for me), which left the federal funds target rate (FFR) unchanged at 3.50-3.75% for a fourth straight meeting. This was also Kevin Warsh’s first meeting as the new Chairman, which arguably came across as very hawkish. For now, forward guidance has also been dropped. This will, of course, increase volatility around inflation and employment prints going forward.
We were presented with a meagre four-paragraph statement, and the easing bias was removed. The ending was also rather blunt, adding: ‘The Committee will deliver price stability’, with no mention of the other side of the Fed’s dual mandate.
The SEP was hawkish, with the FFR revised up to 3.8% from 3.4% in March, suggesting the Fed expects rates to end the year higher than previously thought. The 2027 FFR was also revised up to 3.6% (from 3.1%) and 2028 up to 3.4% (from 3.1%), with the longer run unchanged at 3.1%.
The widely watched dot plot also showed that an eye-popping nine members pencilled in at least one rate hike this year, which was much more than expected. Warsh did not submit a dot, in keeping with his long-standing scepticism of forward guidance. Markets are now fully pricing in a Fed rate hike for as soon as October.
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Aaron Hill