Keep Calm and Carry On
The US economy has stumbled since March’s FOMC meeting. Both new job creation and inflation came in notably softer than expected in March. Moreover, US GDP growth was below 1% as well. Yet, the Fed chooses to look past this dip. They view it as a temporary soft patch and view themselves as on track for two more rate hikes this year.
Indeed, the Fed has remained more resolute in their quest to normalize policy than markets have. There are several reasons for the Fed’s “keep calm and carry on†attitude:
1.The Fed’s approach to monetary policy has shifted from “Look for rationales to avoid normalizing policy†to “Look for openings to normalize policy gradually.â€
2.Even after multiple Fed rate increases, monetary policy remains quite accommodative while the economy is running close to full steam
3.Broad financial conditions remain easy - despite the Fed’s efforts to tighten them
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