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Dips Considered Corrective


Trend Signals Remain Bearish

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Lloyds Bank said the Fed's forward guidance set a "much higher hurdle for a rate hike (or 'lift-off'), indicating that it wants to see a return to "full employment" and inflation above its 2% target "for some time" before it starts to raise rates."

  • Lloyds said the "updated 'dot-plot' showed Fed policymakers evenly split between interest rates starting to rise in 2022 or 2023, a change from last time when most didn't expect a rise until 2023. The median expectation for the number of rate hikes in 2023 also went up from 2 to 3, with a further 3 increases in the first forecast for 2024. However, Powell once again emphasized that too much should not be read into these forecasts given how uncertain the economic environment remains, which may have provided some reassurance to markets.
  • Key part of Fed's message: US monetary policy is currently highly accommodative and that this position will only change very gradually even after it starts tapering. Consequently, interest rates look set to remain very low by historic standards for a long period of time. Nevertheless, monetary conditions, which have been very supportive of asset prices over the past few years, seem on course to become less accommodative over the next few years."