26 Jan 2015
Increasing disinflationary pressures - FOMC to consider - BAML
FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch noted the FOMC coming up this week and highlighted the increasing disinflationary pressures.
Key Quotes:
"More interesting - and less certain - is how the Committee will react to increasing disinflationary pressures. In December, the FOMC dropped language that asserted the risk of "persistently below" target inflation had "diminished somewhat," and instead said that they will "monitor inflation developments closely." We expect this sentence to remain in January, buying the FOMC time to collect more data and reconsider the inflation outlook in March."
"However, we do see some chance that the statement will incorporate more dovish language about ensuring the Fed will reach its medium-run target."
"Despite the FOMC looking past "market-based measures of inflation compensation" to date, the Chart of the Day reveals their persistent decline. 5y5y-forward breakevens in the US fell another 23bp after the December Fed meeting. In contrast, European breakevens are up slightly over the same period, responding positively to ECB easing. The drop in US breakevens raises questions about the longer-run ability of the Fed to reach its 2% inflation target."
Key Quotes:
"More interesting - and less certain - is how the Committee will react to increasing disinflationary pressures. In December, the FOMC dropped language that asserted the risk of "persistently below" target inflation had "diminished somewhat," and instead said that they will "monitor inflation developments closely." We expect this sentence to remain in January, buying the FOMC time to collect more data and reconsider the inflation outlook in March."
"However, we do see some chance that the statement will incorporate more dovish language about ensuring the Fed will reach its medium-run target."
"Despite the FOMC looking past "market-based measures of inflation compensation" to date, the Chart of the Day reveals their persistent decline. 5y5y-forward breakevens in the US fell another 23bp after the December Fed meeting. In contrast, European breakevens are up slightly over the same period, responding positively to ECB easing. The drop in US breakevens raises questions about the longer-run ability of the Fed to reach its 2% inflation target."