The Fed kept interest rates unchanged at 5.25 to 5.5%. Rate cuts are not imminent as recent data releases have not increased the Fed's confidence in regaining price stability. Yet, raising interest rates further are not on the table. The Fed decided to slow the pace of balance sheet rundown (QT) from June onwards. A more gradual approach is intended to limit the risks of financial market turbulences from central bank liquidity becoming scarce. Treasury yields decreased because of the meeting and the US-dollar weakened. |
In 2023, all appeared to be set for a soft landing of the US economy, with inflation retreating and economic growth consistently surprising to the upside. However, price dynamics turned unfavourable as of early 2024, making obvious that it is too early to declare victory over inflation just yet. As of now, we do not see the disinflationary path in the US endangered in its entirety. However, caution is advised as far as the future development of growth and inflation goes. A lot depends on the further path of inflation as we move forward - data dependency hence remains crucial, also for the Federal Reserve. We use this interesting scenario to release a freshly updated edition of our US chartbook together with this publication. |
Disinflation hopes have been put to rest by the hotter than expected US inflation figures for March. This has implications for the Fed and financial markets. While we expect the mid-term disinflation trend to remain intact, an imminent cooling of inflation dynamics which could save a June rate cut seems out of reach. We now expect the Fed to cut in September, see US Treasury yields to stay high in the short-term before retreating over the mid-term and assess the US dollar to remain well-supported not only by a diverging Fed/ECB path but also by geopolitical risks. |
For one last time, the ECB has kept key interest rates unchanged. At the next meeting in June, however, everything will be ready to kick-start the rate cutting cycle. Today's ECB meeting should be seen as a preparatory one, at which no additional impulses were given. |
Central banks are living up to their name and are once again central factors for the currency markets. While the US data could postpone the start of the Fed's rate-cutting cycle and thus provide a tailwind for the dollar, the SNB's actions suggest that it is more likely to take the wind out of the franc's sails and bring it to a weaker level. In Hungary, the central bank could credibly convey that interest rate cuts will proceed more cautiously, supporting the HUF. Further across the border in Romania, continued strong capital inflows ensure a stable currency. Last but not least, the NBU once again demonstrated that it has the means to stabilise the FX market in Ukraine. This issues features
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