23 MAR

2018

Fixed Income , Asset Class

FED: mission accomplished

As expected, new Fed Chairman Jerome Powell raised the fed funds rate by 25 bp at the FOMC meeting on 21 March, an unanimous decision that bumped the rate up to 1.75%, with additional hikes set to take it to 2.50% by the end of the year.

Thanks to Trump's fiscal stimulus plan, the US GDP growth forecast is on the rise and inflation is likely to return to around 2%.

Despite the rate hike, however, Powell is following in the decidedly dovish footsteps of Janet Yellen.

By insisting on gradual adjustments, the market deemed the move cautious, trimming 5 points of the US 2-year and causing the dollar to slide.

So it's mission accomplished for the first FOMC of 2018. It remains to be seen what impact prolonged monetary normalisation will have on the economy and lending in the US. This question is all the more relevant given the continuously increasing pressure on monetary financing, as underscored by the recent decline in the TED spread.