May 3 Fed Announcement Review and Outlook
In March 2017 the US Fed raised the interest by 25 basis points. This was based upon positive Economic Growth and Falling Unemployment. The conditions were ripe for a rate increase to curb rising inflation.
In the First Quarter of 2017
· Economic Growth 0.7%
· Unemployment 4,5%
· Inflation 2,4%
· Interest 1%
· Debt 104% to GDP
Central Banks around the globe have remained on the sidelines as Geopolitical Risk remains high.
The USD has made gains against JPY, GBP, CAD and Lost ground against
AUD, EUR, NZD.
The Fed made the decision that analysts and the markets had anticipated, the decision was to hold the rates at 0.75.
The USD strengthened following the announcement.
The markets DOW fell 0.11%, S&P 500 lost 0.31%, NASDAQ ).58%. In Europe STOXX fell 0.04%. (Reuters May 3)
Should be mentioned that the announcement of a decline in Iphone sales did raise worldwide concerns on consumer health which may have influenced the markets.
Overall the Economy is still in good condition, the Labour Market is nearing full employment. Growth has slowed in the first quarter of 2017, this has been the worst Q1 performance in 3 years in terms of Economic Growth.
There has been an increase in wage growth which may increase consumer spending. This hasn’t been apparent yet because in April Consumer confidence fell from 125,6 to 120,3 this can mainly be attributed to consumer uncertainty over Trump’s policies and the threat of a government shut down. The fundamentals maybe looking weaker, but not enough to avoid a hike in June.
The Fed did not address the balance sheet which raises concerns about the future of Bonds. The Fed currently holds $4 trillion worth of bonds if they keep raising rates it will hurt them. They may need to start selling off some of their bonds into the open market.
If growth remains consistent the US fed is set to raise rates 2 more times this year, the first could be in June and once more later in the year. GDP growth in Q2 is expected to be at 2,8%. The Markets look ready for the rate hike in June and the chances for it happening have increased to 75.2% according to CME’s FedWatch tool.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.