Global Daily – The outlook gets a little less certain for Powell

by: Bill Diviney

Fed View: ‘For now’ points to increased trade wariness – In his prepared remarks, Fed Chair Powell’s semi-annual testimony to Congress was consistent with his recent commentary, with a mostly very positive assessment of the US economy. The most notable remark was his added caveat of ‘for now’ in reference to the FOMC’s view that it should continue to gradually raise the fed funds rate. To us this suggests some increased doubt over the outlook given the ongoing uncertainty over trade policy, and the anecdotal reports that this is holding back investment decisions. Indeed, we saw some hint of this in yesterday’s Empire State manufacturing index (see here), though the broader national ISM continues to point to very strong investment growth. Specifically on trade, Powell said that it is “difficult to predict the ultimate outcome of current discussions over trade policy” but he used the same language to describe the “economic effects of the recent changes in fiscal policy” – which poses upside risks to growth. All told, we continue to expect the Fed to hike by 25bp at each quarterly press conference meeting to June 2019 (i.e. four more hikes), though there is a risk that the Fed pauses in its hiking cycle, should business confidence decline significantly on the back of trade uncertainty (see also our Short Insight – What could trigger a Fed pause?). (Bill Diviney)