Despite our dovish expectations, the FOMC outcome is even more dovish than we expected:
- Fed forecasts show no rate hikes in 2019 and one in 2020. This is broadly in line with our expectations (one hike in 2019 and no hike in 2020).
- The Fed indicated that they will stop shrinking their balance sheet in September, meaning a total balance sheet size of over $3.5 trillion and excess reserves above $1.3 trillion. This is clearly more dovish than market expectations.
- The committee downgraded its economic forecasts from 2.3% to 2.1% this year and from 2% to 1.9% next year, given external risks (slowing growth in Europe and China, worries over tariffs). Inflation forecasts are unchanged.
Market reaction confirmed the dovish interpretation with lower yields and a weaker US dollar.
Disclaimer
This commentary is intended for professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.