EUR 45.60 For Business Accounts Only

Sluggish US Data Does Not Alter Fed's Plans

​Markets have responded to softer US economic data in recent weeks by reducing the probability of Fed rate hikes. By some measures, markets are now pricing in only one additional policy move in 2017.

MIG believes markets are weighing the recent sluggish spring data too heavily and have gone too far in discounting Fed policy action. There are two reasons to support this view:

• MIG expects the soft trend in data to be temporary and consumer spending and inflation to rebound in coming months
• Growing confidence in the economy has stiffened the Fed’s resolve to normalize policy – even in the face of sluggish data

Looking ahead, the April 28^th deadline for US government funding will be a focus of market attention. Our base case is for Congress and the White House to agree to an extension and avert a damaging shutdown of the US government. This will likely disrupt funding and money markets.

However, there is a real possibility of broader market turmoil – even if the eventual outcome is benign. The President has espoused an unorthodox negotiating style and doesn’t shy away from rhetorical bluster.  His propensity for public negotiating and brass knuckle tactics could lead to turbulence in equity and rates markets over the week as well.