US Fed in a wait-and-watch mood: Thomas Simons, Jefferies

In a chat with ET Now, Thomas Simons, Jefferies, deciphers the impact of the US Fed move

ET Now: How does one really read into the Fed statement because it seems like the world is a little divided - a little happy because it seems they are going to hold fire till March and a little upset that they did not talk about quantitative easing or infusing the economy with fresh paper supply?

Thomas Simons: As you mentioned, the Fed was really well balanced in the statement that they gave and talked about the possibility of raising rates in the later half of the year. I would say that the Fed could not have been more dovish than this because then they would have been admitting that the December liftoff was a mistake which would have rocked confidence in the institution, ruing their credibility and really caused more financial market instability. They characterised the outlook putting the global economic volatility right into the forefront and also mentioned that domestic economic activity is doing quite well, specifically the labour market. I think, overall, it paints a picture that the Fed clearly is not ready to raise rates again as conditions stand as they are right now. But if things in the global market place were to turn around in the near term, I think that a rate hike in March is not necessarily off the table either.

ET Now: Secretly markets actually should be celebrating that Fed is now worried about the global setup. The fact that Fed has openly acknowledged that global concerns or global volatility has come to the fore means no rate hike and that means a more accommodative monetary policy. So if the Fed move or the Fed hint is towards more accommodative monetary policy, how do you explain the last night selloff in US equities?

Thomas Simons: That is a very good question. As we said in the trading desk earlier, we are wondering about it as well. The equity markets seemed to have initially taken the news quite well. I think perhaps it is just the notion that the global economic situation is still significantly uncertain from the perspective of US investors and also the implication that the global and the US economy are also uncertain combined with some poor earnings from some of the bellwethers, led to this selloff. But in general, I think the FOMC statement tried to really walk a fine line between being hawkish and dovish and that indicates that the FOMC is really in a wait and see mode.