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 widely expected the Federal Reserve (Fed) decided to raise rates by 25 basis points, the second move this year and the fourth in this cycle. Somewhat surprisingly though, the accompanying statement offered a fairly neutral tone hinting the Fed may now pause before hiking once more. A slowing in domestic data and reduced expectations of a 2017 fiscal loosening have clearly started to weigh on Fed thinking. Although the dots still imply another hike this year, it may now have to wait until December. Expect US treasury (UST) yields and the dollar to fall on the news, although US equities are likely to be buoyed by the more dovish outlook.”

Lesné commented, “In line with our expectations, and as per its recent telegraphs to the markets, the Fed raised rates by 25 basis points. With two hikes out of three or four expected for 2017, this hints at a summer break before hiking once more. Indeed slower domestic data and further delays to the promised fiscal loosening certainly impacted that decision. Meanwhile with the European Central Bank (ECB) remaining very accommodative and UK politics reviving volatility somewhat, it could cause the Fed to be in pause mode. We would probably wait for more clarity on the Fed’s balance sheet winding down program by September and another hike in December – creating a tradition after 2015 and 2016! The dollar could remain in its recent range on the news, offering a bit of respite in the tightening cycle. This may help the US equity outlook after its recent underperformance versus its European counterparts. This is likely positive for emerging market local currency assets too.”