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FOMC projections are unambiguous: - BNP Paribas

William De Vijlder, chief economist at BNP Paribas, notes that the US growth forecast has been revised downwards for 2019 by the FOMC, while the unemployment rate in 2020-21 is expected to be higher, the pace of further tightening is projected to be slower and the cyclical peak in the fed funds rate has been trimmed as well.

Key Quotes

“Foreign exchange markets have understood the message: the dollar weakened versus the euro, not because of a risk-on switch (which tends to be reflected in a stronger euro), but because of the prospect of monetary desynchronisation next year with the Fed slowing the pace of rate hikes and the ECB starting to hint at an upward move in rates.”

“Wall Street and equity markets globally didn’t like the message: when dovish guidance causes a decline in risky assets it is clear that investors are in the grip of growth fears. In that environment, ebbing concerns about rate hikes are of no avail.”

“Judging by the very low level of unemployment, the pick-up in wage growth, the expansion of real disposable income, the expected growth of company earnings, one struggles to see what wuld cause such an abrupt stop in this cycle, unless confidence would drop significantly.”

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