State Street Comments on Federal Open Market Committee Interest Rate Decision

In reaction to today’s US Federal Open Market Committee (FOMC) meeting, 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, “This was the widely expected outcome from today’s meeting, with the FOMC sanctioning its second rate hike in three months, but leaving its guidance for rates over the remainder of 2017 unchanged. Improving real economic data, continued strong labour market gains and a rise in headline inflation set the stage for the FOMC to deliver the first of three projected 2017 tightenings. Attention will now most likely shift to the June 14 meeting when many expect a further increase in rates. However, with the much talked about Trump fiscal stimulus still some way away from fruition, the Federal Reserve (Fed) will wish to see continued economic strength and, perhaps, signs of a pick-up in wages before committing to a June move. We expect little market reaction to today’s decision given it was widely priced into markets. It will take further positive economic news to continue the push higher in US bond yields and US dollar.”

Lesné commented, “As widely expected the FOMC announced its first rate hike of 25 bps in 2017. This is only the third hike since the global financial crisis pushing the target range of Fed fund rates to 0.75-1.0 percent. The FOMC acknowledged further improvement in labour markets, business investment trends and consumer spending as well as sentiment generally rising. Meanwhile core inflation is getting closer to the Fed’s goal. Nevertheless uncertainty surrounding fiscal policy still poses some near term risks. More data will need to be gathered to envisage a more hawkish path keeping potential further rate increases to two in 2017. This could lead to bear steepening in the front end of the curve (two to five year) with two-year bond yields rising a bit less than five-year.”