Ashton Whiteley - Fed Raises, Sounds Hawkish Note Despite Data

Ashton Whiteley: US central bank says recent soft data is likely temporary, plans to unwind balance sheet this year.

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Jul 04, 2017, 20:00 ET

SHANGHAI, July 4, 2017 /PRNewswire/ -- As expected, the US Federal Reserve delivered its highly anticipated 25 basis points increase in the Fed Funds rate after a two-day meeting on Wednesday. Although markets had expected the hike, the US dollar strengthened sharply, gold prices fell and stock futures pointed lower, primarily on comments made after the rate decision, says Shanghai-based investment house, Ashton Whiteley.

The Fed raised the fed funds rate to a range of between 1 percent and 1.25 percent but also said that recent weakness in economic data was likely transitory.

"Weakness in the pace of job creation, moderating inflation and a sharp fall in retail sales would ordinarily stay a central bankers hand," said an Ashton Whiteley analyst.

"It's worth remembering that, as little as 18 months ago, the kind of economic data we've been getting lately would have had the Fed using some very dovish language indeed to soothe market jitters but it looks like they're determined to take rates higher," he added.

The central bank also surprised markets with a hawkish tone on its timetable for unwinding its hugely bloated balance sheet which it expanded during the days of quantitative easing when it bought up hundreds of billions of dollars in mortgage-backed securities and long-dated US treasury bonds each month in a bid to boost anemic economic growth.

"It is our view that the Fed is trying to build ammunition for the tools it will need to combat the next economic downturn but with these rate hikes and the talk of unwinding its balance sheet, it may very well end up bringing about the downturn it wants to battle," said the Ashton Whiteley analyst.

Despite the hawkishness of the Fed's statement Ashton Whiteley says it expects US economic growth to turn downwards this year and for interest rate hikes to end by the start of the 4th quarter of 2017.

Contact - Market Watch Asia - 128 Chaoyang Park S Rd, Chaoyang Qu, Beijing Shi, China. [email protected]

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SOURCE http://ashtonwhiteley.com/