A statement from the Fed is expected Wednesday 27 July at 20h after two days FOMC meeting.
After the Bank of England and the ECB, it is the turn of the Fed meeting this week. The 10 members of the FOMC, in charge of US monetary policy, began to meet on Tuesday 26 July.
Making preparing minds for a rate hike by year-end
Not surprisingly, the Wednesday meeting “should be completed by maintaining the status quo on interest rates in the US,” explains Franck Dixmier, director of bond managements at AllianzGI. But he said “It is likely, however, that in its comments the Federal Reserve again leaves the prospect of increases in Fed Funds rate,” that is to say, its key rates.
Following the status quo of the Bank of England (July 14) and the ECB (July 21), it seems unlikely that the Fed really shows concern about the consequences of Brexit, the consequences on the US economy should remain very indirect . For a month, the Brexit even largely benefited the US markets, which made figure of refuges for investors.
“The US central bank should take advantage of [the good market] to focus more on domestic US economy and recall on this occasion that rate hikes decisions are conditioned to his own diagnosis in terms of growth, inflation and employment “anticipates Franck Dixmier.
Brexit is already a distant memory
Despite the warnings of BNP Paribas IP economists, the US economy appears to remain strong. Thus, “The continuation of the gradual normalization of US monetary policy seems well founded and the markets begin to integrate this new analysis” estimates the bond manager AllianzGI. For proof: “While at the end of June no rate hike was planned for 2016, the probability of a hike in December is now anticipated to 40%” by investors
According to him,” at best, the July meeting will prepare the ground for the September meeting which will prepare its turn the ground for the meeting in December! The September meeting will be significant, but only serve to demonstrate that the Fed will have more leeway and will be forced to raise rates in December. “
What about the reaction of equity markets?
the evocation of an increase in the Fed’s key rate is generally bad news for the direction of equity markets, which usually have a carryover effect of investments when rates of other investments, which depend on the Fed rate remain low.
Alexander Baradez, strategist at IG France, whatever the content of Wednesday’s release, it should not so not arouse enthusiasm of investors.
“If the statement of the Fed is less accommodating than expected by markets, volatility could begin to make a comeback,” he says. But even “if the Fed adopts a worried tone in relation to the world situation and the risks associated with Brexit [which would mean a prolonged maintenance of policy accommodation, Ed], it could communicate this concern to markets and cause corrections. “
the Fed will have to avoid repeating the mistake of September 2015 when Janet Yellen announced an extension of the loose monetary policy of the Fed amid economic uncertainty in the country emerging. Investors had taken these concerns in the first degree and equity markets were trending sharply lower despite the monetary policy decision which should be favorable to them.
As always, Europe, possible movements Wednesday market that cause statement from the Fed in the US markets will be replicated in Europe after the meeting, with the market opening Thursday 9am.
Xavier Bargue (redaction @ boursorama.fr)
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