9 Apr 2015
FOMC readying for lift-off, but June too early – KBC
FXStreet (Barcelona) - The Research Team at KBC Bank, explains that the recent FOMC Minutes suggest the Fed is clearly positioning itself for a lift-off, but recent economic data out of US suggests a June rate hike is highly unlikely.
Key Quotes
“The FOMC Minutes showed that, at the time of the March meeting: "Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016”.”
“Since the meeting, we had surprisingly soft payrolls and other first-tier reports. These suggest less robust Q1 growth has reduced chances of a June rate hike despite “several” proponents.”
“NY Fed Dudley aligns with this reasoning. In a Reuters interview yesterday he admitted that the bar to a June rate hike had risen, while insisting that he had not completely ruled it out.”
“In addition, the Minutes showed that members generally judged the situation on the labor market improved, while the assessment of inflation was diverse.”
“Overall, the conclusion was in line with Yellen’s speech (Mar 27): “the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation. Further improvement in the labor market, a stabilization of energy prices, and a leveling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up".”
“So overall, the Fed is clearly positioning for a lift-off, but June will likely be too early.”
Key Quotes
“The FOMC Minutes showed that, at the time of the March meeting: "Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016”.”
“Since the meeting, we had surprisingly soft payrolls and other first-tier reports. These suggest less robust Q1 growth has reduced chances of a June rate hike despite “several” proponents.”
“NY Fed Dudley aligns with this reasoning. In a Reuters interview yesterday he admitted that the bar to a June rate hike had risen, while insisting that he had not completely ruled it out.”
“In addition, the Minutes showed that members generally judged the situation on the labor market improved, while the assessment of inflation was diverse.”
“Overall, the conclusion was in line with Yellen’s speech (Mar 27): “the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation. Further improvement in the labor market, a stabilization of energy prices, and a leveling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up".”
“So overall, the Fed is clearly positioning for a lift-off, but June will likely be too early.”