The Federal Reserve will no longer be ‘patient’ in its approach to monetary policy, the disappearance of that word opening the door to a 2019 interest rate cut.
Describing the US economy as rising at a ‘moderate’ rate versus the previously used ‘solid’, while bemoaning that inflation is ‘running below’ its 2% target, the central bank said that it will ‘act as appropriate’ to sustain growth in the face of ‘uncertainties and muted inflation pressures’.
There were some FOMC members that wanted a cut right now, namely St Louis Fed President James Bullard, who voted to slash rates this month. Whether or not the central bank does go ahead and reduce rates in July – as is the expectation – may be partially dependent on what happens in Osaka next week, when Donald Trump and Xi Jinping meet at the month’s G20 meeting.
The markets were pleased with the dovishness on display. The DAX shot above 12400 as it added 100 points, a level last seen in almost 7 weeks, with the CAC crossing 5550 for the first time since the end of April. The FTSE, however, failed to hit a fresh high despite climbing 0.4%, mainly because of the mining and sterling-inflicted losses incurred on Wednesday.
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