US growth spurt underpins Fed determination- ANZ

According to analysts at ANZ, the early indication of Powell’s leadership at the Fed is that the FOMC will be resolute in setting monetary policy.

Key Quotes

“The FOMC will publish its updated Summary of Economic projections on 21 March. There are upside risks to the near-term projections for growth, which may have implications for the inflation outlook.”

“We simultaneously expect that the FOMC will raise the fed funds range by 25bp to 1.5–1.75% when it meets later this month. We continue to expect the FOMC to raise rates twice more this year.”

“US trade policy announcements have ruffled financial markets recently. Although the accompanying rhetoric has been punchy, we do not expect a trade war. But developments warrant close monitoring.”

“The G20 meeting on 20 March will be important in assessing the US’s attitude towards global co-operation and clarifying Washington’s dollar policy.”

“What we’re watching

• The ECB will publish updated macroeconomic projections when it meets this week. The appreciation in the euro since they were last updated in December may warrant some caution on inflation. But what the markets will really be watching for is any evolution in the ECB’s forward guidance.
• Given the current undershoot in inflation we expect any progress in guidance, if it emerges, to be very gradual. There is some speculation that the ECB might drop its easing bias. Growth would warrant that, but inflation data doesn’t.
• US CPI inflation is expected to show ongoing gradual firming in core inflation. That is important in raising confidence that inflation is sustainably returning to target and justifying the Fed’s guidance that interest rates will rise further.
• The US February labour market report is due on Friday. Expectations are that NFPs rose 200k and wage growth continued its gradual firming. We expect average hourly earnings to have risen 0.2% m/m and 2.8% y/y.”