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.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA 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 CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.