On Tuesday, Federal Reserve Chair Janet Yellen held a press conference following the Federal Open Market Committee meeting in Washington. Yellen indicated that the Fed would proceed “cautiously” regarding interest rates. Yellen also cited that global risks such as low oil prices and volatility in China would weigh on Fed policymaking.
Richard Koo of Nomura opines in a new note:
Over the past few weeks markets around the world stabilized in response to the Fed’s decision not to hike at the March FOMC meeting and the indication that it now expects to raise rates only twice in 2016, down from the four times initially expected. Some markets have even put in new highs for the year.
But now that markets appear to have recovered, senior Fed officials are starting to talk about the possibility of another rate hike as early as the late April FOMC meeting. I see this as the first iteration of a cycle of conflict between investors and the authorities in which market turmoil prompts the Fed to take a step back but only until markets regain their balance, at which point the central bank resumes its drive to normalize monetary policy. I expect this pattern will continue for some time.
In Europe, the ECB announced a host of additional easing measures including four-year long-term refinancing operations (LTROs), an increase in its asset purchases, and further rate cuts.
On the domestic front, economic concerns are gradually making themselves felt on the political stage, with Japan’s prime minister meeting recently with Professors Joseph Stiglitz and Paul Krugman to discuss the economy.
See the following visualizations which highlight figures regarding the federal funds rate, oil prices, and the Chinese market.
Federal Reserve Chair Janet Yellen holds press conference [CHARTS]
Adjustments to the Federal Funds Rate (1 Year)
Crude Oil Spot Pricing
Shanghai Composite Index (Closing) – 1 Year