State Street Market Commentary on Federal Open Market Committee Rate Decision

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In reaction to the US Federal Reserve meeting today, Lee Ferridge, head of multi-asset strategy for North America at State Street Global Markets and Antoine Lesné, EMEA head of ETF strategy at SPDR ETFs, part of State Street Global Advisors, offer their views.

Ferridge commented, “As widely expected the FOMC left US rates unchanged at their February meeting and kept the accompanying statement broadly unchanged from that following the December gathering. The market is currently attaching around a 25 percent probability to a hike in March and that is unlikely to change substantially following the broadly neutral statement. Although recent Fed commenters have taken a more hawkish tone it seems that the uncertainty surrounding likely policy moves in the coming months means that the FOMC remains in wait and see mode. While a March move is still possible should headline inflation and inflation expectations rise materially in the coming weeks, it seems that the June meeting is now the most likely time for the next hike in the cycle.”

Lesné commented, “This was the scenario that we had expected. For example, a wait-and-see mode until details of the fiscal stimulus really emerge. Moreover this package has to be passed through congress and the Fed will need to refrain from hiking too quickly. The market has been pricing a higher probability to a hike in June. Fed commenters clearly took a more hawkish tone of late preparing the ground in case the fiscal boost is accelerated or that inflation starts to overshoot. This would be viewed as mildly positive for the markets, and could still favour TIPS as inflation surprises may still come towards the spring, inviting investors to find a partial protection with these strategies.”