9 Apr 2015
June rate hike by Fed highly unlikely – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, views that the recent FOMC Minutes suggests that many members remain in the favour of a rate hike this year, but recent economic data suggests there is a high probability for a hike later in this year, but not June.
Key Quotes
“The dollar has strengthened modestly further against the euro in the aftermath of the FOMC minutes released last night with the details offering no major surprises. The minutes confirmed what the fed funds projections revealed on 18th March – that 15 of the 17 members who attended the meeting expect the first rate increase to come this year.”
““Several” participants judged that conditions warranted a move in June while a “couple” believed waiting until 2016 was appropriate. With a “couple” meaning two and “several” probably meaning three or four, we can conclude that most believe the second half of this year is the appropriate timing for “lift-off”.”
“That is exactly the thinking of the market now with the probability of a June rate increase now close to zero percent with one full increase nearly in the price by December.”
“What is clear from the minutes is that the majority of FOMC members at the meeting were still viewing the economic weakness as transitory. Given the Bloomberg Economic Surprise Index at the time of the meeting showed the worst run of economic data relative to expectations since the 2009 recession, the very fact that the FOMC were still signalling a rate hike strongly suggests that the slowdown was being viewed as transitory.”
“The comments from Fed officials since the weak jobs data last week suggests that view has not changed much. Perhaps one or two of the “several” participants that were calling for a June rate hike have now shifted but the timing for a rate increase remains broadly intact.”
“In our view that bodes well for the dollar once the current transitory weakness passes and the markets become more convinced that the Fed will become active later this year.”
Key Quotes
“The dollar has strengthened modestly further against the euro in the aftermath of the FOMC minutes released last night with the details offering no major surprises. The minutes confirmed what the fed funds projections revealed on 18th March – that 15 of the 17 members who attended the meeting expect the first rate increase to come this year.”
““Several” participants judged that conditions warranted a move in June while a “couple” believed waiting until 2016 was appropriate. With a “couple” meaning two and “several” probably meaning three or four, we can conclude that most believe the second half of this year is the appropriate timing for “lift-off”.”
“That is exactly the thinking of the market now with the probability of a June rate increase now close to zero percent with one full increase nearly in the price by December.”
“What is clear from the minutes is that the majority of FOMC members at the meeting were still viewing the economic weakness as transitory. Given the Bloomberg Economic Surprise Index at the time of the meeting showed the worst run of economic data relative to expectations since the 2009 recession, the very fact that the FOMC were still signalling a rate hike strongly suggests that the slowdown was being viewed as transitory.”
“The comments from Fed officials since the weak jobs data last week suggests that view has not changed much. Perhaps one or two of the “several” participants that were calling for a June rate hike have now shifted but the timing for a rate increase remains broadly intact.”
“In our view that bodes well for the dollar once the current transitory weakness passes and the markets become more convinced that the Fed will become active later this year.”