Damian Testi, Investment Manager, comments on the Federal Reserve’s impending monetary policy decision.
The overwhelming market consensus is that we will see no change to the federal funds rate following January’s Federal Open Market Committee meeting. We agree with this view, and will be watching the changing of the guard from Janet Yellen to Jerome Powell closely for indications of future monetary policy direction.
We expect the Fed to implement ‘steady and gradual’ hikes on a quarterly basis throughout 2018. We believe there will be additional 25 basis points at each of the March, June, September and potentially December meetings.
These dates are the most probable trigger points given the meetings are accompanied by a ‘Summary of Economic Projections’ and press conference from Jerome Powell. The Fed’s mandate, to be increasingly transparent and articulate their economic stance to the market, will be more important than ever as this bull market moves into its tenth year.
The key factors that have driven the solid start to 2018 in global equity markets have arisen from US tax reform, corporate tax repatriation and a weakening US Dollar. The depreciation of the global reserve currency has driven significant upside across the commodities segment in particular. Major currencies like GBP, EUR, CNY and JPY have all appreciated between 4.5%-6%+ against the US Dollar since the FOMC’s last meeting. More monetary policy tightening is definitely on the cards.
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Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, may fall as well as rise and the amount realised may be less than the original sum invested.
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