Diverging economic fortunes keeping the Fed patient

Diverging economic fortunes keeping the Fed patient. The U.S. economy has continued to heal since the FOMC met last, in December but the international context has proved a lot less encouraging. Political and geopolitical factors accentuate the notable divergence in economic performance between the U.S. and the rest of the world, fueling greater foreign exchange volatility that some central banks and multinational companies struggle with. With these considerations clouding the picture Fed officials are likely to play for time. Look for them to minimize changes to their economic assessment while maintaining the policy signaling as is for now. That means they will maintain their patient approach to policy interest rates, confirming the consensus that rate increases, if they occur this year (which I think they will), wouldn't start before June at the very earliest. And when they do begin, the pace will be extremely gradual: The endpoint will be below the 4 percent historical average, and the path will be cushioned by reassuring forward policy guidance. (VIEW LINK)


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