Economics: Is The Fed To Dovish?

(Drivebycuriosity) - Last week`s Fed decision might have surprised some. Fed Chair Jerome Powell declared that they plan no more interest rate hikes for this year. The finance market took this as a confession that the Federal Reserve got pessimistic. It seems that Powell confirmed the general anxiety and fueled the ongoing recession calls. The new Fed pessimism may have iniated - at least partly - Friday`s buying spree on the bond market (flight into safe assets) and the simultaneous selling on the stock market (flight out of risky assets). In December Powell had spooked the markets by being too hawkish as he announced a series of interest hikes for 2019, last week he might have overshot in the other direction.

It looks like that the Federal Reserve got spooked by the recent economic data like the disappointing February job market report, falling & weak retail sales in December & January and sluggish industrial production. The monetary authority might have also responded to the ongoing economic weakness in Europe. But the current soft spot in the US economy does not predict the whole year. Can we believe the gloomy official retail numbers (minus 1.6% in December) when the retailers reported strong holiday sale? Can we believe the disappointing February job market report when the growth of salaries accelerated and the week jobless jobless still float close to all-time-lows? The Fed cannot read the future, nobody can. It is possible that the soft spot ends soon, especially if Trump`s trade war against China does not escalate. And the war against inflation is not won yet. Oil prices jumped about 30% since December and Opec is trying to hike oil prices further!

I wouldn`t be surprised if the Fed would change her course in the run of the year again and will continue her interest rate hikes.