Hawk-to-Dove…

About the Fed rate decision… I usually prefer to read between the lines rather than looking at the big picture. I even listen to the Fed Chair’s answers from reporters following the announcement. I did the same on Wednesday night:

As expected, Fed kept interest rates stable. Stating that a weaker economy is spreading all around the world, Fed Chair Powell said, “The central bank will be “patient” before determining its next move as we watch to see how the economy evolves”. He noted that further evidence of a weaker global economy has emerged, especially in China and Europe. This statement wasn’t really surprising for me as I’ve seen former Fed Chairs delivering similar statements before. Bernanke, who served two terms as Chair of the Federal Reserve, had said “We are following developments in Europe closely”.

So, I engaged my attention to other things Powell said, especially when he invoked the word ‘patient’ to reflect the Fed’s approach to future hikes, thus help support the economy. Apparently, Fed Chair is trying to keep the expectations within rational limits. In other words, he’s trying to say that the US economy is doing well, but not great. “The economy is doing just fine, but let’s keeps our expectations realistic.” I got the message!

“Political Developments: Are they being taken into account?”

Giving “we have a lot to do” message to calm the markets further down, Powell said that the Fed will start reducing its balance sheet after rate hikes are complete. Fed’s future hike will be done according to economic data.

Another important detail was this: Indicating that Trump’s stubborn demand for Wall funding has resulted in Federal Government closure, which will obviously bring negative impacts on US first quarter GDP growth, Fed Chair also said that Brexit will have consequences for the United States as well. Here’s what I understand from the things he said: Fed Members will monitor all Domestic and Foreign Developments closely and these developments will be taken into account when making key decisions.

The fact that Fed Chair said, “Political concerns will never matter to us”, in reply to another question from the press, has particularly engaged my attention. I think he wanted to make a tiny correction to the written release he has been provided with before the press conference, in order to avoid any misunderstanding. Well, I don’t buy it! Fed obviously integrates uncertainties to be arisen by political developments into its set of analysis.

In conclusion, Fed decision turned out to be exactly as expected, sparing markets from getting hit by a surprise, thus helping them breathe a sigh of relief. This relief naturally had its positive impact on Turkish Monetary and Capital Markets. Let’s hope this relief phase continues for a little while more.

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