In case you missed out on the Fed's policy decision yesterday:
- Federal Reserve hike rates by 25 basis points, as expected
- Powell opening statement: We have more work to do
- Powell Q&A: It is important that financial conditions reflect policy restraint in place
- Powell opens the door to rate cuts this year "if inflation comes down much faster"
- A comparison of the December 2022 FOMC statement to the February 2023 statement
- The full FOMC statement from the February 2023 Federal Reserve meeting
Risk rallied in the aftermath, even more so after Powell opened the door on potential policy changes should inflation developments continue to act more favourably down the road. There are of course some caveats with Powell still saying that the Fed doesn't share the same view as broader markets but with every meeting, he seems to be caving in more and more. And we will take that every day of the week.
The decision also saw the dollar stumble across the board with key levels being threatened as stocks are also eyeing a major breakout.
It is now down to the BOE and ECB to vindicate such sentiment but I would argue that risks are skewed towards being pro-risk today. The BOE is up first and 50 bps is the baseline expectation but they could have the propensity to surprise with 25 bps instead. Adding to that, policymakers are likely to be more divisive as the economy faces a recession and that also favours a less aggressive end to their tightening cycle.
As for the ECB, 50 bps is the benchmark and they are likely to play it straight and commit to another 50 bps in the next round while reiterating that inflation remains their number one priority.
