As expected, the US Fed left its key interest rate unchanged in a range of 2.25% to 2.50%. The Fed also said it will stop shrinking its bond portfolio in September, a step that should help hold down long-term interest rates. In our view, the Fed’s new embrace of patience and flexibility indicates its calming response since the start of 2019 to slow growth at home and abroad, a nervous stock market and persistently mild inflation.

We reiterate our view that the Fed will maintain the current policy rate in 2019. Though the economy is on a firm footing, it faces risks from slowing growth and trade conflicts. So, room for one rate hike during the year has been lowered to 5% from previously 30%. In fact, we are looking at the possibilities for the Fed to institute a rate cut in 4Q2019 or 1Q2020 should the potential incoming data becomes softer, pointing towards a slower economy.

With key global central banks embarking on a more conservative approach in relation to their monetary policy tightening approach, it provides a lot of room for other central banks to follow suite. With the global economic outlook expected to moderate coupled with a lack of inflationary pressure, we can now expect central banks around the world to potentially reduce rates in a move to support growth. These include Bank Negara Malaysia where we expect a 25bps cut in 2H2019, most likely in July.

• As expected, the US Fed left its key interest rate unchanged in a range of 2.25% to 2.50%. The Fed also said it will stop shrinking its bond portfolio in September, a step that should help hold down long-term interest rates. The Fed’s move signals there will be no major increases in borrowing rates for both consumers and businesses. It now projects one rate hike in 2020 and none in 2021.

• We believe the shift by the Fed towards a more hands-off approach and away from a steady policy tightening shows the central bank is over with its raising rates for now and act to support rather than restrain the economy. Though the US economy is on a firm footing, it faces risks from slowing growth and trade conflicts. Thus, the Fed lowered its 2019 GDP outlook to 2.1% from the previous projection of 2.3%.

• We reiterate our view that the Fed will maintain the current policy rate in 2019. Though the economy is on a firm footing, it faces risks from slowing growth and trade conflicts. So, room for one rate hike during the year has been lowered to 5% from 30% previously. In fact, we are looking at the possibilities for the Fed to institute a rate cut in 4Q2019 or 1Q2020 should the potential incoming data becomes softer, pointing towards a slower economy.

• With key global central banks embarking on a more conservative approach in relation to their monetary policy tightening approach, it provides a lot of room for other central banks to follow suite. With global economic outlook expected to moderate coupled with a lack of inflationary pressure, we can now expect central banks around the world to potentially reduce rates in a move to support growth. These include Bank Negara Malaysia where we expect a 25bps cut in 2H2019, most likely in July.

Source: AmInvest Research - 21 Mar 2019