The US Federal Reserve rate hike and the positive outcome of Dutch elections were hot topics this week. Financial markets reacted positively but muted.
In the Netherlands, ruling party VVD has won the Dutch elections and kept populist Party for Freedom (PVV) at bay. With upcoming elections in France and Germany, the outcome can be seen as a first victory against populism in Europe. The outcome of the elections immediately translated in an appreciation of the euro and equity markets and in a slight appreciation of bonds. The heart of the new cabinet will likely be centrist and formed by VVD, CDA, D66. With this election result, a referendum about the Netherlands leaving the European Union can be ruled out at least during the life of the new government.
In the US, the Federal Reserve (Fed) has raised its policy rates and maintains a gradual pace of rate hikes. As expected, Fed policymakers raised the target range for the federal funds rate a quarter point to 0.75-1% in the March meeting. The Fed’s forecasts for the target range for interest rates show that the central bank continues to expect two additional rate hikes this year and two rate hikes next year. We expect that the Fed will continue to hike interest rates at a gradual pace, with the central bank hiking two more times this year, in June and September.
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