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US: Data momentum cresting, markets under-pricing Fed risks for 2019 - Westpac

David Goodman, analyst at Westpac, suggests that the US economy has slowed from breakneck pace of mid-2018, after growing strongly in recent years which has enabled policy normalisation.

Key Quotes

“Officials generally speak of a positive and robust outlook with little threat of an inflation outbreak. However, as we know policy acts with lags and as we approach estimates of neutral, further moves will be in a trepeditious, data-dependent manner. In addition, press conferences at every meeting as well as a broader review of communications means predictable quarterly moves are not assured.”

“We see three hikes in 2019 with the federal funds rate peaking at 3.125%. Clearly there are risks regarding Trump’s fiscal expansion and trade, but our Fed forecast should support a stronger USD and bond yields moving gradually higher, although this won’t be a linear move, as the market will view every Fed hike as the last.”

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