Fed goes all in on Dovish commitment (dot plots no more hikes in 2019)

The Federal Reserve delivered a very clear dovish message.  The dovish pivot that has been in place in January was cemented.  The decision was considered dovish as the Fed cut the 2019 dot plots forecast from two hikes to none, many expected them to bring it down to one increase.  The Fed also sees one hike priced in for 2020, but that might not matter as many will join the camp that the next move will be a cut.

The Fed will end their balance-sheet runoff at the end of September, slightly later than what most economists were expecting.

The immediate dovish reaction saw the dollar tumble, stocks reversed earlier declines, and the 10-year and 2-year yields came down.  Gold got its groove back and is now comfortably above the $1,300 an ounce level.

The Fed is over-committing a dovish stance, and this could be a policy mistake that may see them have to flip flop in the summer.  The Fed could have maintained their patient approach and kept a rate hike on the table for 2019.  If the US sees a trade deal in place in the next two months and if global growth concerns ease, we could see growth and inflation stabilize thus meaning the Fed has painted themselves in a corner.

The next economic downturn will see the Fed have less tools available to support the economy.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya