In a few short points, the Exane BNP Paribas Macro team analyzes yesterday's meeting of the Federal Reserve.
No hawkish message has emerged
While the Fed is continuing its tapering, there was no hawkish message on interest rates at yesterday's meeting. The statements released by the American Central Bank, which acknowledges the rebound recorded by growth in the current quarter, in fact show only a few changes compared to those of previous months. And, according to the Exane BNP Paribas Macro team, Yellen has done her best to send a relatively dovish message to the market.
Inflation remains below target
The Fed's message was supported by a positive view on inflation. In fact, the Institute has not revised the estimates on the parameter in the medium-term and Yellen underlined that the inflationary trend is in line with the Board's expectations. Furthermore, the American Central Bank has reiterated once again that the fragility of the labor market is higher than the unemployment rate, a situation probably attributable to the high number of discouraged workers.
Rate hike at a slightly faster pace
While some of the Fed's speech has been positive, it's not all sunshine and roses. Indeed, the American Central Bank once again reduced its estimates of potential growth and revised its rate projections slightly upwards. In particular, the median estimate stands at 1,13% at the end of 2015 and at 2,5% at the end of 2016 vs respectively 1% and 2,25% in the previous estimates.
A shot in the arm for bond markets in the near term
Exane BNP Paribas' Macro team believes that, in the near term, bond markets should be reassured by the absence of a more hawkish tone from the Fed which has not been carried away by the enthusiasm of recent macro data. A behavior judged positively by our economists according to whom it is easier to face inflation than deflation. Nonetheless, the market will remain sensitive to inflation and labor market trends, data that could lead to a change in the Fed's position over time. Furthermore, although the first rate hike currently appears to be a distant prospect, the cycle may, according to the Exane BNP Paribas Macro team, not be as gradual as currently expected. For this reason, our economists expect a rise in bond yields in H2.
