When doves fly

When doves fly

about 5 years ago1 min

Late on Wednesday the US Federal Reserve, as expected, left target interest rates between 2.25% and 2.5%. It offered a more “dovish” outlook, however, which is exactly what investors were hoping for… kinda 😕

O for the wings of a dove...
O for the wings of a dove...

Investors late last year and early this were worried about the slowing effects too-fast rate hikes might have on economic growth. But in its Wednesday statement, the Fed said it could be patient with future adjustments to interest rates – and flexible about the speed with which it undoes its quantitative easing (QE) from the last decade.

Alongside that came a slightly weaker assessment of the US economy, and an acknowledgment that global economic growth looked less certain. That's thanks to a slowdown in China and political tensions between it and the US – and between the UK and Europe. Who’d have thought? 😉

Investors saw the pause as a positive for stocks, since lower rates and a potentially slower reversal of QE should help companies grow more quickly. But investors’ buying may have been partially tempered by the weaker economic outlook in the US.

Still – global stocks are on track for their best month since March 2016:

Just don’t mention December… or October.
Just don’t mention December… or October.

Some investors are worried, however. If the US economy grows as projected this year and the Fed raises rates, say, twice more to the “neutral rate” – once adjusted for inflation, that rate would be much lower than in the past (about 0.5% vs. 2%). And if that’s the case, it suggests the US economy is fundamentally more fragile than it was.

All in, the US economy’s probably cutting a decent figure. But it may be skating on thin ice…

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