FOMC: Has the cycle ended, or have we just hit pause? - Westpac

According to analysts at Westpac, US Federal Reserve’s first meeting of 2019 will be the key focus for global markets this week.

Key Quotes

“Chair Powell will conduct a press conference and he will be quizzed on the souring global outlook with trade and government shutdown adding to the uncertainty.”

“Fed officials have struck a consistently cautious tone since their December hike amid growing calls for a pause as the Fed officials contrast a strong US economy with market volatility and global uncertainty.”

“The other topic for consideration will be the Fed’s balance sheet management. While it hasn’t been as widely discussed, media speculation suggest the balance sheet reduction may be ‘reduced’ with the balance sheet set to reach a larger terminal level than originally predicted. While Powell said in December this policy is on “autopilot”, any change here would surely be taken dovishly by markets.”

“The prospect of soothing words from Powell, modification to balance sheet as well as slowing global growth all should cap sell-offs. However, with so much bad news already in the price we are better sellers of any rallies and look for bond yields to move higher on a multi-month basis, supported by our revised Fed forecast of two further hikes this year.”