Risks skewed towards a more aggressive Fed - ING

Analysts at ING continue to see the balance of risks skewed towards a more aggressive Fed response to combat fears of economic overheating. 

Key Quotes:

"As widely expected the Federal Reserve voted unanimously to leave the fed funds target rate in the range 1.5-1.75%."

"The accompanying statement reports that the economy continues to expand at “a moderate rate”. It acknowledged a slight slowdown in consumer spending, but noted investment continued “to grow strongly” and the jobs market is “strong”.

"Inflation measures have “moved close to 2 percent” with an emphasis placed once again on the fact the inflation target is “symmetric”. Consequently the Fed is of the view that economic risks remain “roughly balanced” and that conditions will evolve in a manner that warrants ongoing “gradual increases in the federal funds rate”."

"The dollar has weakened a touch and Treasury yields are fractionally lower, which may reflect a hint of disappointment that the Fed were not more upbeat on the economy and the threat of inflation."

"It could possibly be down to the re-inclusion of “symmetric” as a way of underlining the gradual approach to policy tightening - the Fed looked through temporary dips in inflation and therefore will look through temporary spikes. Either way the Fed were unlikely to be very bold given there is a long way to go until the June 13 FOMC meeting."

"We look for a June rate hike followed by two further 25bp moves in the second half of the year with the main threat to our view being an escalation of economically damaging trade tensions."