As expected, the Fed maintained the target range at 0.25-0.50%. It removed 'global economic and financial developments continue to pose risks', which was included in the statement in March. Now the Fed 'closely monitors inflation indicators and global economic and financial developments' . In other words, the Fed acknowledges that financial stress has eased and China has stabilised by removing the 'risks' word. Still the statement was only slightly more hawkish than in March , as the Fed did not state something similar to 'risks are nearly balanced' - the Fed is still worried, just not as much.
The big question before the meeting was whether the Fed would keep the door open for a June hike or not. Due to the changes in the statement, we cannot rule out a June hike completely and the Fed keeps its flexibility . However, the Fed has now lost the possibility to communicate to prepare markets beforehand that June is in play.
Our main scenario is still that the Fed stays on hold until September and hikes only once this year . For some time, we have argued that we believe the Fed is unlikely to risk tightening too much, too quickly and that it would rather postpone the hike further than tighten prematurely. In this connection, it is important to recognise that most voting FOMC members are skewed towards a dovish stance on monetary policy .
The patience stance from the Fed - despite the slight change in rhetoric - underlines that US monetary policy is still a supportive factor for the global fixed income market . Hence, it seems that the trigger for a repeat of the global bond sell-off we witnessed a year ago is not going to be US monetary policy for now. That said, the FI market is vulnerable if the money market starts to move forward the timing of the first rate hike, which is currently not pencilled in before next year.
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