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How is the Fed going to respond? - BAML

FXStreet (Barcelona) - Athanasios Vamvakidis, FX Strategist at Bank of America Merrill Lynch questions how the Fed is responding to recent conditions in the markets.

Key Quotes:

"A key question in the markets today is how the Fed will respond to the recent volatility, the weak global data, the falling inflation expectations (globally, but even more so in the US), increasing Eurozone periphery risks, the drop in global equity prices, and the USD rally. Clearly, these developments point to a weaker economic outlook and increasing risks than just few weeks ago, justifying loose monetary policies."

"Tightening US policies in this environment could increase risks, with negative spill overs to the rest of the world. Will the latest developments bring the Fed's Dot Plot down, closer to market expectations?"

"Will the Fed keep time dependence in its forward guidance longer? Could the Fed even signal that an interest rate hike in 2015 will not be coming? And most importantly, will the Fed express concerns about the strong USD?"

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