5 Jun 2015
Expect a September rate hike by Fed – NAB
FXStreet (Barcelona) - Tony Kelly, Senior Economist at National Australia Bank, shares the inflation, rate and labour market outlook for the US economy.
Key Quotes
“Our expectation has been that the Federal Reserve would start increasing the fed funds rate in September this year. The pace of subsequent increases is expected to be gradual by past standards.”
“The Fed Chair has emphasised the importance of labour market indicators in the decision about when to start lifting rates. The labour market is continuing to show improvement across a broad range of indicators, although this is unlikely to continue if growth were to remain weak. Therefore, for a September rate hike to occur, the tentative signs of an improvement in the economy will need to become much more solid.”
“Inflation will also need to stabilize if not recover some ground. The Fed Chair indicated in March that she would be uncomfortable if measures of underlying inflationary pressures were to weaken, and there has since been some softening in the annual growth rate of the core (ex energy and food) PCE price index. However, it has risen at an annualised pace of 1.5% over the three months to April, after only growing at a 0.4% pace over the preceding three months. Further, other underlying inflation measures such as the core CPI, median CPI, and trimmed mean (CPI and PCE price index) have held up better.”
Key Quotes
“Our expectation has been that the Federal Reserve would start increasing the fed funds rate in September this year. The pace of subsequent increases is expected to be gradual by past standards.”
“The Fed Chair has emphasised the importance of labour market indicators in the decision about when to start lifting rates. The labour market is continuing to show improvement across a broad range of indicators, although this is unlikely to continue if growth were to remain weak. Therefore, for a September rate hike to occur, the tentative signs of an improvement in the economy will need to become much more solid.”
“Inflation will also need to stabilize if not recover some ground. The Fed Chair indicated in March that she would be uncomfortable if measures of underlying inflationary pressures were to weaken, and there has since been some softening in the annual growth rate of the core (ex energy and food) PCE price index. However, it has risen at an annualised pace of 1.5% over the three months to April, after only growing at a 0.4% pace over the preceding three months. Further, other underlying inflation measures such as the core CPI, median CPI, and trimmed mean (CPI and PCE price index) have held up better.”