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Ninety One’s Silberston comments ahead of today’s Fed meeting: US monetary policy is in utterly the wrong place

Federal Reserve Building
The Federal Reserve Building.

Ninety One strategist, Russell Silberston comments:

“With inflation just shy of 8% and unemployment sub 4%, US monetary policy is in utterly the wrong place, with rates still pegged at zero and quantitative easing only just finished. No surprise, therefore, that the Federal Reserve is unanimously expected to start hiking interest rates this week and get policy back toward a neutral setting as soon as possible. Recent communication has been mixed, with two Governors favouring kicking off the cycle with a 50bps hike, whilst the majority, including Chair Powell, have expressed a more measured response, starting with a hike of 25bps but maintaining the option of being more aggressive if needed. It is hard to argue with the Chair’s view, but such is the extent of the distance between where monetary policy is and should be, don’t be surprised to see dissenting votes in favour of more aggressive action. Market watchers will also be focusing on the Summary of Economic Projections, and in particular FOMC participants expected interest rate profiles. Given how loose policy is, we would not be surprised to see these projecting interest rates above the so-called neutral rate of 2.5%, thus communicating that monetary policy needs to be contractionary rather than simply reverting back to a more neutral setting.”

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