Is "patience" just a "Powell Put"?

Posted by: Paul Donovan

31 Jan 2019
  • Yesterday's US Federal Reserve meeting produced some unexpected caution in the statement and, particularly, Fed Chair Powell's moment before the world's media. The role of inflation in driving policy (and possibly preventing rate hikes) was emphasized. There was also more discussion of the Fed's bond holdings – though the balance sheet is more about liquidity stability than policy tightening or easing.
  • Equity markets liked what they heard – there is a sense that the Fed is very eager to prevent market volatility. It is worth remembering that rising equity markets are not good. Fairly valued equities are good. At the moment, rising markets are still fairly valued, but the Fed presumably does not want things to go too far.
  • Eurozone GDP for the end of 2018 is due. There was a lot that went wrong late last year – protests, auto-makers' problems and transport disruption hit domestic demand. Weaker global capital spending disproportionately hurt Eurozone exports. Some of these factors will fade in 2019.
  • The EU is suggesting no renegotiation in the interminably tedious UK exit process. Delaying exit would allow the UK to negotiate with a different Commission. Elsewhere, Japanese industrial production was a little stronger than expected.

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