BNY Mellon Weekly Market Commentary

QE – RIP (no Zombies Allowed) As expected, the Fed closed its latest chapter of QE today. We, for one, hope that three times is the charm and we don’t see QE again. For the moment, we read the statement as being fairly balanced. However, we feel that the market was expecting a more dovish statement, making today’s actions appear hawkish. In particular, we think that the market has become fixated on inflation (or the lack thereof). Also, the committee’s view that energy-driven price declines are transitory was likely cold water to those who expected the Fed to express some concern over collapsing forward inflation expectations. Additionally, there was no mention of the strength of the dollar or declining prospects for global growth, which together formed the basis for a longer time frame for rate hikes. The statement also pointed out that labor market slack remained, inflation continues to run below targeted levels and data will subsequently dictate the timing and speed of policy normalization. At the moment, stocks are marginally weaker, while yields are between 1 to 9 bps wider than yesterday as the market seems to be backing out the late 2015 rate hike trade.

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