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, “As was widely expected the FOMC left US rates unchanged at its May meeting, but left the door open for a move in June. Prior to the meeting, the market had estimated a 60 percent probability for a June hike and that is unlikely to change materially following this announcement. The key over the coming weeks will be the economic data from the US but in addition, the FOMC will be closely watching Washington and negotiations surrounding the new administration’s tax cut plans. Should the data hold up (or better still, improve from here), while the chances of a late summer tax cut agreement remain intact, then the market will likely price in a June move. A hike in June would be the second of the three that the Fed tells us it is likely to deliver in 2017.”

Lesné commented, “In line with market expectations going into the FOMC meeting, the US Federal Reserve did not hike the Fed Funds this time around. Comments from the committee members and economic data will be key to nail the second rate hike of 2017. It is expected to happen at the next meeting in mid-June. However it may happen amidst a heavy European political agenda and following negotiations around the expected US tax cut plan. So it may still be too early to predict a hike. Last, if high levels of US equities are being watched by investors and any potential drop could potentially influence the FED’s action too. In the meantime, we see investors going with this tightening mood and favouring exposures benefitting from a hike such as floating rate notes. Convertible bonds have also proven to do relatively well in such tightening periods.”