FOMC Proves More Hawkish

With many anxious that the US Federal Reserve might ultimately be forced to quicken the pace of interest-rate increases to head off higher inflation, Federal Reserve officials concentrated on the impact of potential fiscal stimulus during their December policy meeting.

The majority on the committee echoed that a “gradual” pace of rate hikes over the coming years would probably remain appropriate, even though growing attention to the risks of increased government spending and tax cuts could spur faster growth than currently forecast.

Traders now see a rate hike by June as highly likely, according to prices of Fed Funds futures, which were little changed after the minutes were released. The Dow Jones Industrial Average rose 60.40 points, or 0.30%, to close at 19,942.16, after coming within just 44 points of the 20,000 level.

With the worst case “Brexit” scenario failing to materialize, UK fundamentals continue to show broad-based improvements as evidenced by the latest construction figures reported on Wednesday.  The monthly Construction PMI survey put out by the Charted Institute of Purchasing and Supply showed the sector expanding by the most in 9-months.

The one item that was evident from the data is increasing inflationary pressures following the massive Pound devaluation that resulted from the referendum.  Importers are passing these costs along to producers which will eventually distribute higher prices to consumers, adding to inflationary upside.  As a result, the ability for the Bank of England to ease monetary policy further from current levels may face difficulties, especially with unemployment at an 11-year low.

Meanwhile, the weakness in the Pound has seen the FTSE 100 hit a new intraday record in early Thursday trade.