Is Fed FOMC outcome hawkish or dovish? Here's is what Street says

Reacting on Wednesday's Federal Open Market Committee (FOMC) meeting outcome, here's what experts said:

Emkay

The policy directive is moving exactly the way we expected in early 2024. We had argued if it is time to reassess our faith in central banks’ guidance post-pandemic and called for no rate cuts by the Fed early this year (and consequently the RBI).

Expectedly, the market expectations of the start of the cut cycle have been a moving goal post. No Fed cuts’ in 2024, followed by a shallow cut cycle is on its way to turning into a reality, as they struggle to get to the last mile of disinflation. This is already spilling over to EM Central Banks, including the RBI. But unless it is accompanied by immediate negative growth shocks, we don’t see a collapse in EM risk assets, and believe that the cherry-picking theme will work relatively well for India assets.

Manish Jain, Mirae Asset Capital Markets

A practical approach taken by the Fed today by maintaining policy rates at 5.25-5.50%. If it sounds , then it is. The Fed is trying to balance the economy with maximum employment, stable demand & supply. The Fed still finds the inflation rate too high and doesn’t want to ease too early and face the risk of inflation coming back. Until inflation sustainably moves towards 2%, we can’t expect any easing. At the most, we can expect only one cut during this year, not more. The Fed will be totally data dependent until inflation is well anchored.

Manish Chowdhury, Head of Research, StoxBox

Though the Fed’s dot plot now forecasts just one rate cut in 2024 compared to three cuts projected in March, the economic data in the recent past has shown early signs of moderation. We believe that the Fed has shown a tinge of dovishness in its commentary, with the reaction to incoming data expected to be much quicker than earlier. This should keep risk on assets such as equities supported at least in the near term. With no indication on the timing of a rate cut yesterday, our sense is that the chatter surrounding a rate cut in September is still not off the table, given yesterday’s softness in consumer price inflation.

Ed Yardeni, Yardeni Research

I hope it (Fed) is becoming less relevant because it has been all too relevant for too long. It seems that the markets have basically been a puppet that has been controlled by the Fed pulling on the strings. And the reality is that a lot of the inflation that we had, was related to the pandemic and inflation in recent months over the past…, really since the summer of 2020 has been moderating all by itself.

We did not have to have a recession in the US to bring inflation down. China has been in a property recession and they are exporting deflation to the rest of the world, including the United States. And meanwhile, rent inflation is coming down in the United States. So, between goods inflation and services inflation coming down, I am not quite sure why the Fed feels a need to be front and centre here. They could put low key here and recognise that in terms of their dual mandate, the economy is doing fine and inflation is moderating, so maybe are where they should be.

I think that the days when we could look at emerging markets as an asset class and just overweight ETF emerging markets, I think those days are over. I think we have got to be much more discriminating and investors clearly have been much more discriminating. They have not been buying China. They have been buying India. They have not been buying Mexico. They have not been buying commodity producers like Brazil.

Dhawal Ghanshyam Dhanani, SAMCO Mutual Fund

To the surprise of many, the Fed indicated a big hawkish stance by suggesting just one rate cut coming this year versus 3 in March, cementing higher for longer rates regime for the markets. Chair Jerome Powell categorically stated that the pre-pandemic ultra-low rate world may not return. Markets being myopic may rejoice cooler than expected CPI data along with clarity of dot plot this year.

Subho Moulik, Founder & CEO, Appreciate

The 3.3% CPI reading in May was the kind of positive reading that the Federal Reserve was pinning its hope on after a disappointing first quarter this year. The reading goes on to add more grist to Chair Jerome Powell’s belief that inflation is moving gradually towards the 2% target, even if it might be doing so on a somewhat bumpy path.

As far as the economic projections are concerned, I would be cautious about putting too much weight on the expectation of just one rate cut this year. Chair Jerome Powell has pointed out that these projections come with “a slight element of conservatism” and are data-dependent, which is another way of saying that there could be more than one rate cut in the year, provided we have a string of positive, confidence-inducing inflation results."

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)