The Fed minutes, released yesterday, reveal that FOMC members cited a variety of factors in their January meeting to justify a dovish shift in monetary policy. These included financial market volatility, low realized inflation and market-based inflation, the government shutdown, previous tightening, trade uncertainty and the continued slowdown in China and Europe. In addition, almost all FOMC participants think a plan to end balance sheet normalization will be announced soon. The Fed seems keen to end its balance sheet run-off by the end of the year. Given the sizeable list of factors that contributed to the Fed’s policy U-turn and its increased focus on ending its balance sheet reduction, it seems unlikely that the central bank will restart hiking any time soon. History shows that after most Fed pauses, the next move is a rate cut, frequently accompanied by a recession. For now, however, the policy stance should be viewed positively as it brings a halt to the reduction in liquidity and tightening effect on economic growth.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.
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