Impact of US Monetary Policy & State of Global Economy By Nirmal Bang

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  1. Vidhi Khanna

    Vidhi Khanna Active Member Staff Member

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    Fed Unlikely To Hike Rates In 2015 As expected, the US Federal Reserve (Fed) dropped the word ‘patient’ from its statement after the policy meeting on 17-18 March 2015, but this does not imply its impatience. Our analysis of the Fed’s communications since December 2008 reveals that this is for the ninth time it has changed/updated its guidance on interest rates. Taking into account the reality, the FOMC (Federal Open Market Committee) lowered inflation and economic growth projections (versus its December 2014 forecasts) along with the unemployment rate. This implies that the FOMC expects more slackness in the labour market currently compared to three months ago. More importantly, the FOMC substantially pared its rate hike projection path with as many as 13 members (up from 8 in December 2014) expecting the Federal funds rate to stay <=1% by 2015-end, while 11 participants (up from only four in December 2014) expecting it to be <=2% by 2016-end. The FOMC stressed that while a rate hike is unwarranted at its next meeting scheduled on 28-29 April 2015, all rate decisions at subsequent meetings will be data-driven. This fits well in line with our assessment that the Fed is likely to postpone rate hike to 2016.

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