Happy Fed Day

Unlike the expectations of the beginning of the year, the Federal Reserve (Fed) will most probably keep the rates unchanged today, update its dot plot and maybe give a hint on whether they will start slowing QT. Given the recent uptick in inflation, strong economic growth, healthy jobs market and robust earnings, we could see some Fed members plot fewer rate cuts for the year and the latter could tilt the median forecast to 2 rate cuts this year from 3 plotted in December.

Fed Risks Tilted Towards Hawkish Surprise

Turning to the Fed, risks are tilted towards a hawkish surprise. Inflation forecasts are to be revised upwards for this (and perhaps next) year against the background of a resilient economy and labour market.

Bitcoin and Ethereum Seek Support

Bitcoin is down 13.6% in seven days, trading at $62.8K and dipping below $61.0K in the early session. Technically, it remains in a downtrend, with a series of lower lows and lower highs. We will pay attention to the first cryptocurrency’s dynamics at the following support levels: $60.3K (correction to 61.8% of the last rally), $56K area (50-day average and 50% level) and $51.5K (consolidation area in February).

GBP/USD Dips as UK Inflation Lower Than Expected

The British pound has extended its losses on Wednesday. In the European session, GBP/USD is trading at 1.2695, down 0.21%. The pound has been on a slide and is down about 1.2% since March 13.

UK Inflation Sets Up a Marathon for BoE

UK inflation has come in slightly weaker than expected, but this does not significantly bring the rate cut date any nearer. The CPI rose by 0.6% in February after a similar fall in January. Annual inflation slowed to 3.4% from 4.0%, vs expected 3.5%. Core CPI slowed its rise to 4.5% y/y in February after three months of stabilising at 5.1%.

Sunset Market Commentary

The ECB and its Watchers XXIV conference and UK February CPI data provided a welcome interlude counting down to tonight’s Fed decision. ECB Lagarde basically held to the recent communication line. Moving into the dial back phase requires wage growth to slow further, a continued decline in inflation towards 2% and a confirmation in new internal projections.

FOMC Remain Data Dependent, But on Track for June

March’s FOMC meeting communications and forecasts were largely as expected, highlighting policymakers’ confidence in the fight against inflation and achieving a soft landing. The FOMC is on track to begin cutting in June, assuming progress continues to be made with inflation. The bigger risk is the degree of persistence in price pressures into the medium-term, and consequently the end point for this cutting cycle.

Fed Review: Not as High, But for Even Longer?

The Fed remains on track towards price stability (and consequently, rate cuts), despite 'bumps' seen in the inflation data in early 2024. Powell chose his wording carefully to avoid sounding too optimistic on inflation, but also made it clear, that as monetary policy remains restrictive and labour supply recovers, further disinflation is still on the radar.

March FOMC Meeting: Still Building Confidence

As widely expected, the FOMC left the target range for the federal funds rate unchanged at 5.25-5.50% at the conclusion of its March meeting. The last rate hike occurred in July 2023, and the Committee has left its policy rate unchanged in the eight months since.

First Impressions: NZ GDP, December quarter 2023

The New Zealand economy was broadly flat over the December quarter. The production measure of GDP fell by 0.1%, slightly weaker than the zero growth that we and the Reserve Bank were expecting. Both the expenditure and income measures (the latter being a new addition to today’s release) were flat in inflation-adjusted terms.