The FOMC minutes delivered what investors were looking for. The Fed surely wants to avoid another taper tantrum and they kept the markets calm
The Fed is letting sleeping dogs lie with the latest FOMC minutes confirming their current wait-and-see approach when it comes to reducing market liquidity. Goal achieved! A panic reaction has been averted for now. Hang on your hat until the reduction of the balance sheet gets back on the cards. That’s when we will know if the cheap borrowing party will continue.
Q1 has seen anything but strong economic data with transitory being the Fed president’s favourite word. The risk is there but we don’t expect the Fed to shift ground anytime soon. A clear confirmation of the magnitude of the risk will have to come first, which means the Fed can buy some time for now.
Looking ahead, the menu has two possible rate hikes for the Fed. The first one could come as early as June but again it is all down to risk assessment and how well the economic data will perform. For more accurate conclusions in that regard, investors are better off watching hard data rather than soft data.
To get a grasp on what is going on, keep a close eye on Citi and JP Morgan, who are masters at passing the higher cost to their clients. With inflation pointing upwards, unless we see an increase in wages, don’t be surprised by the soaring number of overdue payments.