In 2019, the US Federal Reserve has taken a dramatically dovish turn, most notably by acknowledging that “crosscurrents and conflicting signals” have caused them to take a “patient approach” towards any future interest rate changes. Markets were spooked late last year when Jerome Powell signalled several rate hikes were still to come, but now it appears they will delay any such move choosing to wait for signs in economic data. They were also more dovish in their forecasts of inflation pressures and inflation expectations noting the risks as “roughly balanced,” and their rhetoric on balance sheet policy has been softer too, albeit without formally changing that policy. The markets have welcomed this change of heart.
Another positive step forward in the of defusing bilateral trade tensions that began with the Trump/Xi phone call back on 1 November, the US confirmed it would extend the 1 March deadline for raising tariffs on Chinese imports as promised by President Trump. The announcement is reminiscent of how the US administration handled the auto tariff issue last year: they agreed to defer penalties so talks could progress. The US has also discussed leaving existing tariffs in place to ensure China complies with any eventual deal. In any event, there are many possible outcomes to consider and investors must keep an open mind as developments take place in the coming weeks and months.