US divergence trade is back on
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The intensification of the trade discussions between the US and China as well as the increasing probability of a global economic slowdown has once again forced central banks across major economies to revise their policy path indicating a more dovish responseUS divergence trade is back on
The intensification of the trade discussions between the US and China as well as the increasing probability of a global economic slowdown has once again forced central banks across major economies to revise their policy path indicating a more dovish response throughout the rest of the year. The US Federal Reserve (‘Fed’) stole the limelight at the end of December and again in January. Fed chairman Jerome Powell communicated a complete policy U-turn by pausing interest rate hikes in the near term, while also indicating the possibility of slowing down the rate of shrinking its balance sheet. This would be achieved by decelerating the run-off of security holdings acquired during their quantitative easing programme. The US economy is running on strong labour market momentum and improving productivity as inflation remains relatively muted. Growth rates are expected to be lower compared to last year; however projections are still targeting a respectable expansion of between two to 2.5 per cent for 2019. The policy reaction by the Fed is not mainly driven by expectations of a deteriorating US economy, in fact the probability of a significant economic slowdown or recession is very low,... Read more