Fed meeting: non-event
By Arnaud Masset
US Federal Reserve Chairman Jerome Powell didn’t rock the boat: as widely expected, the Fed raised its target for the federal funds rate by 0.25% to 2%-2.25%, the third such hike this year. One tiny change – the sentence “The stance of monetary policy remains accommodative” was removed from the Fed’s statement, signalling a move away from easy money. We bet it won’t make Trump happy. Besides, since October 2017 the Fed’s balance sheet shrank more 5.5%, or $235 billion, down to $4.01 trillion, its lowest level since April 2014. Meanwhile, the Fed upped its GDP growth forecast for 2018 to 3.1%, compared to 2.8% in June. It expects growth should slow to 2.5% in 2019 (2.4% previous estimate) and 2% in 2020 (unchanged). Inflation’s outlook is unchanged, suggesting the Fed should take a break in its hiking cycle starting in 2021.
Most currency pairs moved violently following the meeting, but most were unchanged at the end of the day. Investors now await the next European Central Bank meeting on 25 October and the next Fed confab in December.
Canada: tick tick tick
By Vincent-Frédéric Mivelaz
Canadian dollar optimism is eroding, as Sunday’s deadline for US-Canada trade talks approaches. US President Donald Trump confirmed his discontent, refusing Canadian Prime Minister Justin Trudeau’s request for a meeting. Trump restated his willingness to implement tough duties on Canadian cars, as negotiations are stalling on multiple topics. As early as tomorrow the Trump administration will publish its bilateral trade agreement with Mexico, putting a trilateral agreement in jeopardy. For now, the loonie is expected to ease against the greenback, trading above 1.3050 and expected to rise as the deadline nears.
US trade representative Robert Lighthizer mentioned that trade talks with Canada are expected to continue after the September deadline. This could lead to two bilateral trade deals rather than one trilateral one. The US-Mexico pact is expected to be signed by Mexican president Enrique Pena Nieto, who leaves office on 1 December of this year. America and Canada continue to be split by divergences on Canadian dairy products, US steel and aluminium tariffs, Canadian media content safeguarding and the broadening of trade dispute settlement.