Royal Bank Report - Fed shifts to neutral policy stance, almost

Royal Bank report - The Federal Govenment shifts to neutral policy stance - or almost

The Fed shifted to a neutral policy stance in mid-March but is keeping the focus on the upside risks to the inflation outlook.

• Economic numbers have been mixed and, on balance, point to another sub-par quarter for U.S. economic growth.


• Markets are focussing on the risks associated with the repricing of the housing and mortgage markets and are priced for a lower Fed funds rate.
  


• The core inflation rate remains elevated, giving little room for a near-term policy rate reduction.
  However, once the core inflation rate heads lower, the Fed will be in a position to tweak the policy rate down.
  


• Interest rates will be range-bound during the near-term, but stronger second-half growth will see some of the froth come off the bond market.
  
  Source: "Financial Markets Monthly", Economics Departnment, RBC Financial Group.
  
  Read more about mortage interest rates
  
  
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