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Fed loses its patience

Published Thursday, March 19th, 2015

The guardians of US monetary policy took centre stage yesterday as they concluded what many saw as the most important meeting in recent years, the outcome of which would undoubtedly reverberate across global markets. They did not disappoint as Janet Yellen paved the way for the first US rate hike in close to a decade after dropping the infamous pledge to remain “patient” in Fed guidance over rate normalisation. Although this validated expectations of a rise in interest rates as early as June, she made sure to stress that the Fed was in no rush to undertake such actions and any tightening would be dependent on forthcoming economic data. Further cautionary hints were highlighted by a downgrade in its US economic growth and inflation projections for this year. These dovish elements bolstered equity bulls who fretted over a sooner-than-expected rate increase and stocks on Wall Street duly bounced by more than 1%.

The diverging path between monetary policy in the US and the rest of the developed world was once again demonstrated by the latest announcement of further easing from across the pond. The Swedish central bank pushed interest rates deeper into negative territory and declared an expansion of its QE programme as it continued in its aim to boost inflation and put the brakes on its appreciating currency. The impact of ongoing central bank largesse was again felt throughout the euro-area with borrowing costs dipping lower and came as the Bank of International Settlements warned of the uncertainty and consequences surrounding negative yielding bonds.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.