The Fed left interest rates unchanged yesterday and said monetary policy needs to remain restrictive for as long as necessary to return inflation to target, though Powell said the next move in rates is likely to be a cut. The dollar had given up some ground ahead of the meeting following softer than expected US economic data and has weakened a bit further post the meeting, trading at around $1.0720 and $1.2530 vis-a-vis the euro and sterling respectively this morning, with EURGBP little changed in and around £0.8550.
Yesterday’s Events
US bond yields have drifted lower following the Fed meeting to leave 2- and 10-year yields both down around 10bps from Tuesday’s close, with the market now pricing in about a 90% chance of a first rate cut in November. Meanwhile, US equity markets gave up some initial gains leaving the S&P 500 slightly lower on the day.
In its post-meeting statement the Fed noted that inflation has eased over the past year but there has been “a lack of further progress” to the 2% target in recent months, and reiterated its policy position that it will not be appropriate to cut interest rates until it has gained greater confidence that inflation is moving sustainably towards target. The Fed also announced that it will slow the pace at which it is reducing the size of its balance sheet (QT) from June.
Yesterday saw the release of some softer than forecast economic data out of the US. The ISM index of manufacturing activity fell back into contractionary territory in the month of April amid a notable decline in new orders, while in the labour market, the number of job openings fell by almost 4% in March.
The Day Ahead
Economic data due today includes jobless claims, factory orders and productivity/unit labour costs in the US, while the OECD has just published its latest Economic Outlook.
Today's Talking Points 02.05.24
Market Commentary
The Fed left interest rates unchanged yesterday and said monetary policy needs to remain restrictive for as long as necessary to return inflation to target, though Powell said the next move in rates is likely to be a cut. The dollar had given up some ground ahead of the meeting following softer than expected US economic data and has weakened a bit further post the meeting, trading at around $1.0720 and $1.2530 vis-a-vis the euro and sterling respectively this morning, with EURGBP little changed in and around £0.8550.
Yesterday’s Events
US bond yields have drifted lower following the Fed meeting to leave 2- and 10-year yields both down around 10bps from Tuesday’s close, with the market now pricing in about a 90% chance of a first rate cut in November. Meanwhile, US equity markets gave up some initial gains leaving the S&P 500 slightly lower on the day.
In its post-meeting statement the Fed noted that inflation has eased over the past year but there has been “a lack of further progress” to the 2% target in recent months, and reiterated its policy position that it will not be appropriate to cut interest rates until it has gained greater confidence that inflation is moving sustainably towards target. The Fed also announced that it will slow the pace at which it is reducing the size of its balance sheet (QT) from June.
Yesterday saw the release of some softer than forecast economic data out of the US. The ISM index of manufacturing activity fell back into contractionary territory in the month of April amid a notable decline in new orders, while in the labour market, the number of job openings fell by almost 4% in March.
The Day Ahead
Economic data due today includes jobless claims, factory orders and productivity/unit labour costs in the US, while the OECD has just published its latest Economic Outlook.
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