“CONFIDENT BUT PRUDENT”

Analysis by Pierre Boyer, Responsabile fondi monetari di Candriam Investors GroupAs expected, the Federal Reserve left its policy stance unchanged at the April FOMC meeting. In order to support the continued progress towards maximum employment, price stability and growth, the Committee decided to maintain its current rates:• Funds rate (upper bound): 0.25%• Funds rate (lower bound): 0.00%• Discount rate: 0.75%Rate:At this meeting, the Fed removed the phrase “the committee judges that an increase in the target federal funds rate remains unlikely at the April FOMC meeting” from the statement, without mentioning any particular month during which the rate would be increased. The Fed has thus left the door open to an eventual second-half rate rise.Growth and the Labour market:US gross domestic product rose at a 0.2 percent annualized pace in Q1 2015. Policymakers blamed the winter slump: “economic growth slowed during the winter months”. As proof of this phenomenon, it highlighted the moderation in the pace of job gains, with the steady unemployment rate and range of labour market indicators suggesting that labour resources continue, largely, to be underutilized. Growth in household spending declined, as did exports, and business fixed investment softened. However, to nuance this picture, the FMOC expects a reacceleration after this first quarter, as the impact of transitory factors such as the weather fades. Furthermore, households’ real incomes will benefit from declining energy prices and high consumer sentiment. Fed officials also remained confident that the labour markets would continue to improve as unemployment continued to fall.Inflation:The FOMC added that inflation was still below target because of the decreasing prices of non-energy imports. The Fed also said that it needed to be “reasonably confident” that inflation would move back to the 2% goal over time before raising rates.Overall, the FED, although still unmoved by the recent temporary slowdown, did indicate that it was still open to a 2H rate rise.MARKET IMPACTMoney Market Investment strategyThis meeting confirmed that monetary policy accommodation would decrease. Our funds are oriented in this direction to outperform our benchmark in such market conditions:• We are maintaining a very low rate (30 days) and credit duration (150 days).• Optimal duration allocation on shorter maturities• We favour a higher rating name that will generate low volatility in our fund.