US: Market's focus squarely on the FOMC – Westpac

In the US, a quiet week for data has put the market's focus squarely on the FOMC, according to Elliot Clarke, Research Analyst at Westpac.

Key Quotes

“Committee members who spoke chose not to rock the boat, but the January meeting minutes indicated that a policy shift may be underway. The primary evidence of a potential change in stance was the inclusion of the following: “Many participants noted that financial conditions had eased significantly over the intermeeting period... the decline in the dollar and the rise in equity prices...  more than offsetting the effects of the increase in nominal Treasury yields”. That financial conditions have eased at a time when the FOMC is tightening policy will grant confidence to the Committee that downside risks associated with tightening policy are negligible.”

“More to the point, this implies that risks to the FOMC rate view (and our own) are arguably to the upside. Should financial conditions continue to move in the opposite direction to the stance of policy (a higher fed funds rate), a more concerted effort by the FOMC may prove necessary to keep the economy on an even footing. The coming six to nine months will be pivotal for the US.”