19 November 2018
Bassanese Bites: Almost neutral? – Week beginning: 19 November 2018
One possible new emerging theme in light of recent market volatility is a somewhat more dovish Fed. On Friday, Fed vice chair Richard Clarida suggested US rates were getting “close to neutral” and he also noted signs of slowing global growth. While it is still very likely the Fed will hike again next month – and probably twice more in H2’19 – sentiments as expressed by Clarida are consistent with my view that the Fed might well announce a “pause” in its rate hike schedule by mid-19. Weakness in US bond yields and the $US suggest the market could be warming to this view, but as yet, Wall Street has not taken much notice. Of course, much will depend on the course of US inflation, especially wage inflation, which makes the monthly readings on average hourly earnings in the US payrolls report so crucial. It’s also worth watching trends in US housing, where some softening is now emerging in light of higher interest rates.
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