The Fed meets, but the BoE should steal the limelight
The Fed is expected to keep policies unchanged, as recent economic developments vindicate its dovish turn last year. Manufacturing remains in the doldrums, but a strong labour market is supporting consumption, while external demand has risen and the US-China trade deal has improved the outlook. Policy support should remain for the time being, as trade tensions will likely linger and inflation is contained. The Fed will probably also continue to buy roughly $60bn-worth of Treasury bills a month – despite stressing this is not quantitative easing. Across the pond, it is unclear whether the BoE will cut rates by 25bps or stay on hold. Negative Q4 data for GDP, consumption and inflation, combined with dovish comments from BOE officials, have fuelled expectations of a rate cut. But forward-looking surveys recently pointed to a modest rebound in activity and at the time of writing the OIS market is pricing in a 50% chance of a rate cut. It probably makes more sense for the BoE to stay on hold and see how the economy performs after the withdrawal agreement is approved. The bank may need its scarce ammunitions for later in the year when negotiations with the European Union could turn sour – the biggest threat to the outlook.