FOMC: Outlook is evolving – Nomura

By FXStreet FXStreet (Delhi) – Lewis Alexander, Research Analyst at Nomura, suggests that the recent FOMC statement highlighted a challenge for the FOMC and market participants.

Key Quotes

“The Fed, in effect, acknowledged that recent economic data have been weak and that recent financial and foreign developments may pose a risk to the US economy. Essentially, the FOMC was sending a signal that its assessment of the outlook may be moving closer to that of the market.

But financial markets took the FOMC’s statements not as a sign that the gap between the market and the Fed was closing, but rather as a reason to reduce their expectations for future rate hikes even more. That may have been an overreaction. We would still argue that the right forecast is for two increases in short-term interest rates this year, while the market is pricing only about one.

Financial conditions have tightened notably. Moreover, our outlook on the rest of the world is at the low end of the Consensus. Thus, we suspect that the FOMC’s outlook is bound to become more pessimistic. This will likely be reflected in the Summary of Economic Projections (SEP) that will be released at the next (March) FOMC meeting and it supports …read more

Source:: FX Street