28 Jan 2016
US economy faced with the headwinds – Rabobank
FXStreet (Delhi) – Philip Marey, Senior US Strategist at Rabobank, suggests that later this week the advance estimate of Q4 GDP growth is likely to show that the Fed made its first hike in one of the weakest quarters since the economy emerged from recession in the summer of 2009.
Key Quotes
“The strength of the dollar – partly caused by the diverging monetary policies of central banks – and the low oil price are punishing the manufacturing and mining sectors. What’s more, the global headwinds do not appear to be fading and the same can be said about their impact on the US economy.
The slowdown in the world economy, the strong dollar and low oil prices also have negative effects on US inflation. Recent developments are not likely to have eased the concerns about the downside risks to inflation that a number of doves already had at the time of the December hike. This means that it will be more difficult to reach consensus on another hike in the near term. Therefore we do not expect the next hike before the June meeting.
The dot plot released in December implies four rate hikes of a quarter this year. Today’s statement suggests that the FOMC is still contemplating how the global headwinds are affecting the balance of risks to the outlook.
We have expressed our doubts about both the inflation outlook and the pace of the economic recovery from the beginning, and consequently also about the four rate hikes that the Fed intended to deliver this year.
We expect only two hikes with risks skewed to the downside. The next hike could even be delayed until next year and a rate cut is not unthinkable either if the US economy were to head south. However, the year is still long and despite the global headwinds the US services sector continues to grow and produce jobs at a strong pace, reducing labor market slack and bolstering the Fed’s confidence in the inflation outlook.”
Key Quotes
“The strength of the dollar – partly caused by the diverging monetary policies of central banks – and the low oil price are punishing the manufacturing and mining sectors. What’s more, the global headwinds do not appear to be fading and the same can be said about their impact on the US economy.
The slowdown in the world economy, the strong dollar and low oil prices also have negative effects on US inflation. Recent developments are not likely to have eased the concerns about the downside risks to inflation that a number of doves already had at the time of the December hike. This means that it will be more difficult to reach consensus on another hike in the near term. Therefore we do not expect the next hike before the June meeting.
The dot plot released in December implies four rate hikes of a quarter this year. Today’s statement suggests that the FOMC is still contemplating how the global headwinds are affecting the balance of risks to the outlook.
We have expressed our doubts about both the inflation outlook and the pace of the economic recovery from the beginning, and consequently also about the four rate hikes that the Fed intended to deliver this year.
We expect only two hikes with risks skewed to the downside. The next hike could even be delayed until next year and a rate cut is not unthinkable either if the US economy were to head south. However, the year is still long and despite the global headwinds the US services sector continues to grow and produce jobs at a strong pace, reducing labor market slack and bolstering the Fed’s confidence in the inflation outlook.”