4 Jun 2015
Fed sticking to a 2015 rate liftoff – DB
FXStreet (Barcelona) - Research Analysts at Deutsche Bank, side with the market expectations for only one rate hike by the Fed in 2015 and two or three more in 2016.
Key Quotes
“The Fed is sticking to the script of a 2015 liftoff and an aggressive trajectory for fed funds relative to market expectations: the market is pricing in only one hike in 2015 and two or three more in 2016. We side with the market because we remain concerned about the robustness of the economy.”
“Productivity growth is abysmal and wage growth is not much better. In addition, we are concerned that the housing industry is in stagflation. Weak spending on owner-occupied housing has been a highlight of the broadly soft consumption data. Since home ownership has strong “multiplier” effects in terms of consumption of housing services, the fact that demand for housing has manifested in a move towards rentals and price increases rather than new construction is worrying.”
“Moreover, while core CPI appears to be closing in on the Fed’s 2% target on the surface, this is largely due to housing-related inflation. Ex the shelter component of CPI, core price growth is well below target. Along with our secular stagnation concerns, this is another reason we expect the Fed to continue to relent, serially “failing” to raise rates.”
“We still think lift-off is likely to slip into 2016 and expect the Fed dots to converge to the market rather than vice versa.”
Key Quotes
“The Fed is sticking to the script of a 2015 liftoff and an aggressive trajectory for fed funds relative to market expectations: the market is pricing in only one hike in 2015 and two or three more in 2016. We side with the market because we remain concerned about the robustness of the economy.”
“Productivity growth is abysmal and wage growth is not much better. In addition, we are concerned that the housing industry is in stagflation. Weak spending on owner-occupied housing has been a highlight of the broadly soft consumption data. Since home ownership has strong “multiplier” effects in terms of consumption of housing services, the fact that demand for housing has manifested in a move towards rentals and price increases rather than new construction is worrying.”
“Moreover, while core CPI appears to be closing in on the Fed’s 2% target on the surface, this is largely due to housing-related inflation. Ex the shelter component of CPI, core price growth is well below target. Along with our secular stagnation concerns, this is another reason we expect the Fed to continue to relent, serially “failing” to raise rates.”
“We still think lift-off is likely to slip into 2016 and expect the Fed dots to converge to the market rather than vice versa.”