Macro Highlights & Strategy February 1st 2016

Market analysis - 2/1/2016

Markets : Central banks strike a chord with investors United States : The Fed treads carefully Why doesn’t the Fed sell some assets?

​Markets : Central banks strike a chord with investors

As expected, the US Federal Reserve (Fed) decided against raising rates again at its latest meeting, offering instead relatively neutral comments. While Janet Yellen has not ruled out a rise in March, she was cautious in her assessment of the US economy. She is supported in this by the latest GDP figures, which expanded at an annualised rate of +0.7% in the fourth quarter.

United States :

The fed treads carefully

At the latest meeting of the Federal Open Market Committee (FOMC), the Fed did not change its monetary policy, letting the fed funds rate fluctuate in a range between 0.25% and 0.50%. Its statement was strikingly neutral, avoiding any overt optimism or pessimism. The stock markets were nevertheless disappointed. They were expecting a more accommodative tone, like last September when the Fed conveyed its concerns about falling oil prices, commodities and the strength of the dollar. Is the Fed less worried about recent market behaviour?

Why doesn't the Fed sell some assets?

The Fed is not ready to reduce the size of its balance sheet this year. Economic agents are highly sensitive to anything that could push the fed funds rate higher, and so the question of reducing the Fed's balance sheet will not be discussed as quickly as initially expected. The Fed prefers to continue supporting the US economy without putting any upward pressure on long-term interest rates. When it comes to short-term rates, the Fed is using unprecedented methods to normalise its monetary policy.