Powered by MOMENTUM MEDIA
subscribe to our newsletter

US Fed keeps rates steady

The US Federal Reserve has decided to leave interest rates on hold, but one economist believes a June hike could be on the cards.

AMP Capital chief economist Shane Oliver said that while the decision by the US Fed to keep interest rates at between 0.25 per cent and 0.5 per cent was widely anticipated, it was more dovish than expected.

“While it sees continued moderate growth in the US, it also acknowledged ongoing global and financial market risks and lowered its so-called ‘dot plot’ of meeting participants’ interest rate expectations to show just two 25 basis point rate hikes this year – down from four – and lowered the long-term interest rate expectation to just 3.25 per cent from 3.5 per cent,” Mr Oliver said.

“Fed chair Janet Yellen in her press conference also signalled a greater willingness to tolerate upside surprise on inflation as opposed to it continuing to run below 2 per cent, as the Fed has more policy room to deal with an upside surprise in inflation than a downside surprise.”

Mr Oliver said the Federal Reserve's continuing dovishness maintains recent upwards pressure on the value of the Australian dollar, which rose 1.5 per cent in reaction to the Fed’s announcement.

Advertisement
Advertisement

“This could go further in the short term, but with the Fed still heading towards rate hikes (albeit ever more gradual) and the RBA still biased towards cutting rates, we still see the [Australian dollar] ultimately resuming its downtrend,” he said.

Mr Oliver said the Federal Reserve does not appear to be leaning towards a rate increase in April, but a hike in June “does look like a reasonable base case, particularly given the recent upwards momentum in US inflation, but with only around 55 per cent probability”.

“And it’s dependent on global threats and financial market turbulence continuing to settle down,” he added.

[Related: NAB changes tone on Fed rate hike]

PROMOTED CONTENT


>AMP Capital chief economist Shane Oliver said that while the decision by the US Fed to keep interest rates at between 0.25 per cent and 0.5 per cent was widely anticipated, it was more dovish than expected.

“While it sees continued moderate growth in the US, it also acknowledged ongoing global and financial market risks and lowered its so-called ‘dot plot’ of meeting participants’ interest rate expectations to show just two 25 basis point rate hikes this year – down from four – and lowered the long-term interest rate expectation to just 3.25 per cent from 3.5 per cent,” Mr Oliver said.

“Fed chair Janet Yellen in her press conference also signalled a greater willingness to tolerate upside surprise on inflation as opposed to it continuing to run below 2 per cent, as the Fed has more policy room to deal with an upside surprise in inflation than a downside surprise.”

Mr Oliver said the Federal Reserve's continuing dovishness maintains recent upwards pressure on the value of the Australian dollar, which rose 1.5 per cent in reaction to the Fed’s announcement.

“This could go further in the short term, but with the Fed still heading towards rate hikes (albeit ever more gradual) and the RBA still biased towards cutting rates, we still see the [Australian dollar] ultimately resuming its downtrend,” he said.

Mr Oliver said the Federal Reserve does not appear to be leaning towards a rate increase in April, but a hike in June “does look like a reasonable base case, particularly given the recent upwards momentum in US inflation, but with only around 55 per cent probability”.

“And it’s dependent on global threats and financial market turbulence continuing to settle down,” he added.

[Related: NAB changes tone on Fed rate hike]

US Fed keeps rates steady
mortgagebusiness

Latest News

The RBA has studied the role of collateral in credit markets under stress, and has found that collateralised borrowing rose for some segment...

Auction volumes surged significantly over the December quarter across Australia, largely attributed to a “resurgence” in Melbourne, acco...

Loan conditions and collateral guarantees continue to be major stumbling blocks for small businesses looking to access financing, according ...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: A new record in mortgage approvals

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.