The US Federal Reserve has been extraordinarily transparent in its intention to lift interest rates at some point this year. It also has been extraordinarily cautious. Recent concerns about financial market volatility and global growth stayed the FOMC's hand in September only for it to almost immediately assure the market that it would raise rates this year in following communications.
However, the takeaway from all this from afar seems to be that the central bank of the world's largest economy is extremely cautious as to the impact of just a single 25bp rise in interest rates, in level terms raising them from all intents and purposes zero to slightly above zero. This all comes as US economic growth, although absent an inflationary pulse, appears quite solid. Nonetheless, a similar course of action will likely come from the RBA when it is its turn to raise rates. There is a strong case it will have to move even more cautiously than its US counterpart.
"We do not think the RBA will need to cut rates again this cycle unless there is a further external shock to the economy, most likely from China", says BofA Merrill Lynch.


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