A more dovish FED

A more dovish Fed - it could start to get interesting in June

Gareth Lewis, Chief Investment Officer of Tilney Bestinvest, comments on last night’s decision by the US Federal Reserve to leave its key policy rate unchanged:

“Last night’s decision by the US Federal Reserve to leave its key policy rate unchanged was in line with market consensus. Indeed with the market ascribing a less than 5% chance of a rate hike going into the meeting any other outcome would have been a very significant shock.”

“However, for Fed watchers the accompanying statement did contain a modest surprise, with guidance on future rates more dovish than expected signalling a closer alignment with market expectations than for several quarters. Perhaps surprisingly, for a statement that went someway to reaffirming pre-existing market positioning, the S&P rallied modestly while the dollar weakened slightly after the statement.”

“While Fed language continues to stress the data dependant nature of its decision making, this shift suggests members of the board are as susceptible to sentiment swings as anyone else. For while last night’s statement acknowledges that the US economy continues to expand at a modest pace it placed further stress on the downside risk posed by global macro developments. Perhaps most significantly the Fed appears to be looking through the modestly increasing inflationary pressure that previously justified its more hawkish language.”

“With the Fed and the futures market more closely aligned on the path of prospective rate rises than they have been for several years, the Fed’s next meeting in June could become of much greater significance. US core PCE inflation is rising, albeit modestly, and is now already above the Fed’s own year-end forecast of 1.6%. Chinese stimulus is likely to stabilise industrial commodity input prices and with oil trading back over $40 there seems a reasonable prospect of the Fed reverting back to a more hawkish position as soon as June.”

“With our macro view firmly in the secular stagnation camp we see little long term prospect of a normalised Fed rate tightening cycle. The increasingly contradictory guidance coming from the Fed would tend to re-enforce the view that they too have real doubts over the sustainability of the current recovery.”

“That said we also firmly believe that Yellen wants to raise US rates further, partly to rebuild the Fed’s policy arsenal, partly to combat the growing risk of asset price bubbles. Short term justifications to support this stance may come through over the coming quarter, making the June meeting more finely balanced.”

- ENDS -

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.

This article is not advice to invest or to use our services. If you are in doubt as to the suitability of an investment please contact one of our advisers.

Press contacts:

Jason Hollands
0207 189 9919 / 07768 661382
jason.hollands@tilneybestinvest.co.uk

Gillian Kyle
0203 818 6846 / 07989 650 604
gillian.kyle@tilneybestinvest.co.uk

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs over 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

For further information, please visit: www.tilneybestinvest.co.uk