US – Powell and the Fed fire

The Fed has shifted policy on the path for the Fed Funds rate and the normalisation of its balance sheet. Both are now data-driven, rather than just rates. The shift in approach to the balance sheet is important. This is because relative to expectations, it will increase risk appetite — particularly for duration — and lower interest rates along the curve. The strategy implications are: a weaker dollar; US bond yields are probably capped not far above where we are now; global equities get another boost; emerging market assets and currencies are perceived to be less under threat and gold should do well.

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