We expect the Fed to remain on hold in March and that it will hike ‘only’ twice this year

The Fed no longer considers that the risks to the outlook are ‘balanced’. However, yesterday's statement was not particularly dovish.

After its meeting earlier this week, the Federal Open Market Committee (FOMC) published a statement where, as widely expected, it acknowledged that “economic growth slowed late last year”. It also added a comment that “the Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook”. This means that the Fed no longer considers that the risks to the outlook are ‘balanced’. However, overall the statement was not particularly dovish. The Fed stressed that “labor market conditions improved further”, and repeated that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen”. Unsurprisingly, it did not take a hike in March off the table.

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Nevertheless, we continue to expect that the Fed will remain on hold in March and that it will hike ‘only’ twice this year, once in June and once in December. In fact, with still subdued wage increases, ongoing turmoil in financial markets and the substantial additional tightening in monetary conditions recorded of late, we believe the possibility that the FOMC will wait later than June before acting again has increased.

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