Fed tightening cycle is over? – Westpac

David Goodman, head of macro strategy at Westpac, explains that the markets have quickly priced out any further tightening after the December hike, suggesting that the Fed tightening cycle is over, which has clearly weighed on USD and yields.

Key Quotes

“While Fed officials have recently sent soothing messages emphasising policy patience as the economic landscape develops, as well as the ability to alter their balance sheet reduction, their median “dot” forecast, produced less than a month ago, was for 2 additional hikes in 2019, with 6 members calling for 3 hikes!”

“This is not to say the Fed is on a dogmatic path and Chair Powell emphasised he is paying attention to market outcomes and “listening sensitively to the message that markets are sending” about downside risks.”

“Perhaps these risks will come from Washington where political rancour is rising to new heights as the US government shutdown becomes the longest in history and sure to weigh on sentiment and economic growth.”