18 to 24 February: “Risks and uncertainties” – FOMC minutes reiterate a patient approach

The Federal Open Market Committee (FOMC) released the minutes from their January meeting. There was a mutual agreement for the FOMC to end the shrinkage of the USD 4tn balance sheet by the end of the year. Members are keen to let the effects of previous tightening play out in the economy but there were concerns that Brexit, Europe and China could weaken domestic growth in the US. The minutes showed that ‘many’ members on the committee were unsure whether any rate adjustments would be needed, with participants advocating a patient approach to future policy action.

The message delivered by FOMC members through the minutes is in line with our base case that the Fed is going to be very cautious to avoid committing a policy mistake. In our view, the Fed’s cautious approach gives impetus to EM asset prices when risk appetite is healthy and could serve as a floor, in times of risk-off global market sentiment.

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