In the wake of solid nonfarm #payrolls, decent manufacturing ISM, and strong Core CPI; have markets gone too far in assuming no rate hikes in 2019, and likely cuts in 2020? We think perhaps so, as the #Fed may yet take an opportunity to hike this year if data allows.
Still, Chair Powell is right in suggesting that there are complex cross-currents at play, since stronger US #economic data may be perceived as #Fed-hawkish, but to the degree that it leads to incremental USD strength, it is a tightening all by itself.
Also, #dollar strength mitigates the ability of #EM central banks to ease, even if local conditions warrant it.
The tightening cycle in the U.S., which truly began in 2014, has provided the #Fed with plenty of policy “dry powder” that can be brought to bear once the #economy again needs it.
Monetary policy stances in both Europe and Japan suggest little room to ease further, but there are some early signs that policy in #China may help the #credit impulse there find a bottom? If that turns out to be the case, it could provide a fresh source of support for markets.
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