Investment Clock insights

Fed message supports strong dollar


Melanie Baker

14 June 2018

The US Federal Reserve (Fed) sent a positive message on the economy, with a (modestly) more hawkish rate profile. The 25bp US rate rise was widely expected, particularly in light of strong labour market data. The rate projection shifted a bit too, now looking consistent with four rather than three rate rises this year (so, indicating two more to go in 2018). They retained use of the word “gradual” around future movements in monetary policy. By 2020 they still expect interest rates to rise a bit above what they see as the longer run average – consistent with a gradual move from a loose to a slightly restrictive policy stance. 
On the economy, they sounded a confident note. On inflation, their forecasts continue to suggest that they will tolerate inflation a little above their target over the next couple of years.
The rate profile adjustment and positive tone should help keep the dollar strong for now, in line with our central case. 

The US Federal Reserve (Fed) sent a positive message on the economy, with a (modestly) more hawkish rate profile. The 25bp US rate rise was widely expected, particularly in light of strong labour market data. The rate projection shifted a bit too, now looking consistent with four rather than three rate rises this year (so, indicating two more to go in 2018). They retained use of the word “gradual” around future movements in monetary policy. By 2020 they still expect interest rates to rise a bit above what they see as the longer run average – consistent with a gradual move from a loose to a slightly restrictive policy stance. 

On the economy, they sounded a confident note. On inflation, their forecasts continue to suggest that they will tolerate inflation a little above their target over the next couple of years.

The rate profile adjustment and positive tone should help keep the dollar strong for now, in line with our central case. 

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.