After cutting interest
rate for third straight meeting, US FED has tried to prepare market for a long
pause. US Governor underlined strong jobs markets and its positive impacts on
bottom of pyramid, who got better job opportunities due to accommodative policies.
US unemployment rate remained close to multi-year low at 3.6% and wage growth remain
low at 0.2%.
Economic activity has
shown signs on weakness as retail sales decline in Sep and ISM manufacturing
PMI remained below 50 for third consecutive month. This seems to be a secondary
reason for FED rate cuts while Trump remains the prime driver. During speech,
FED governor acknowledged this slow-down while expecting a moderate growth in near future. US inflation continued to remain
below 2% levels and FED surveys shows that inflation expectations are settling
well below its 2% target.
QE
or Not QE –
As repo market witnessed
sudden crunch of US dollar and overnight rates spiked close to 8% levels. US
FED restarted its bond buying programme but limited to short term bonds. FED’s
decision to buy T-bills, till q2 next year, should led to increase in FED
balance-sheet size. This, FED believes is technical thing and should not have
any implication on long term yields and monetary policy. Rather it is tool to
smooth en the current monetary policy.
As US FED is already
expecting a weak inflation and moderate growth in coming quarters and it believe
current monetary policy stance is accommodative in these scenario. Thus this
blog expects a decent pause from FED.
Technically, US dollar
index has taken support nearly weekly channel low of 97.10 levels. In coming-weeks
US dollar index can test previous high of 98.80-99.20 levels with stop-loss of
97.00.
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