Fed dashes rate cut hopes
Stock markets are looking a little soft now heading into the G20 later in the week after Fed Chair Jerome Powell insisted that the Fed will be insulated from short-term political interests.
It’s quite clear who that message was intended for but it’s actually investors that it seems to have struck a nerve with. The impression that investors have got over the last week is that the Fed is prepared to cut rates and will start in July but these comments have thrown a spanner in the works.
Interest rate expectations haven’t changed too dramatically though but the odds of 50 basis points have halved. This was also helped by Bullard’s suggestion that 50 points may be overdone and 25 would be sufficient.
Given he’s one of the more dovish members, that sends quite a strong message. I still think markets are too dovish at the moment, almost trying to force the hand of the Fed. They may end up being successful to a point but the message we’re getting from these latest comments is that they’re may be expecting too much
