Fed caution likely to end soon - MUFG

Lee Hardman, Currency Analyst at MUFG, expects that the caution displayed by Fed Chair Yellen could soon end as the Fed has not yet adjusted its economic outlook to incorporate the potential stimulative impact of looser fiscal policy under President elect Donald Trump.

Key Quotes

“The Fed still expects economic growth to remain moderate in the coming years expanding by around 2.0% which it expects to help lift inflation gradually back towards the long-term goal. Fed Chair Yellen acknowledged as well that only a few participants have built in some potential impact of looser fiscal policy into their outlook to Fed policy. Therefore, if President elect Donald Trump follows through with looser fiscal policy it will prompt the Fed to lift their forecasts for growth and inflation justifying an even faster pace of rate hikes in the coming years than the six currently planned by the end of 2018.”