Fed likely to offset fiscal party – BNPP

Analysts at BNP Paribas suggests that while the Fed’s December rate hike was fully anticipated by the markets, the hawkish communication that came with it was not.

Key Quotes

“Overall, the message was that the Fed will be closely supervising any fiscal party that is legislated next year, and could be taking away the punchbowl earlier than the market expects. As the market prices in a higher and steeper path for policy, financial conditions will likely tighten; the question is by how much. The experience of the last few years suggests any incremental tightening can come back to haunt the Fed through exchange rate channels.”