Could the Fed Change Its Dovish Stance as Sentiments Improve?


Last month, the Federal Reserve surprised markets by forecasting no rate hikes for this year. In December, the Fed projected two rate hikes for 2019.

Could the Fed Change Its Dovish Stance as Sentiments Improve?

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In its March policy statement, the Fed said, “information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter.” The Fed also added, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

Economic data

Over the last month, we’ve seen a slight improvement in global as well as US economic indicators. China’s first-quarter GDP was better than expected, and analysts have been upwardly revising the US first-quarter GDP forecast. As economic indicators improve, the Fed might review its position of no rate hikes for 2019. However, in our view, the Fed might continue to be dovish for a while longer and wait for more evidence that global economic recovery is sustainable. A mistimed rate hike could potentially jeopardize the fragile recovery in financial markets.


The Fed’s dovish stance and optimism over US-China trade talks have been among the prominent factors driving the market rally. The S&P 500 (SPY) has gained 15.9% YTD. Semiconductor ETFs also made a 52-week high last week. Intel (INTC) and Qualcomm (QCOM) have respectively gained 25.4% and 42.0% YTD. NVIDIA (NVDA), Advanced Micro Devices (AMD), and Broadcom (AVGO) have seen upwards price action of 39.7%, 49.9%, and 26.4%, respectively, this year.