Fed rate hike: July, September or later? – Rabobank

Philip Marey, Senior US Strategist at Rabobank, suggests that the apparent loss of momentum in employment growth and Yellen’s reaction made him change his call for the first hike of this year to September from June.

Key Quotes

“We have not changed our call for two hikes this year, with the second in December. This is not only based on our expectation that employment growth will pick up again, but also on the observation that the amount of slack in the labor market has fallen to such an extent that the FOMC feels pressured to continue the hiking cycle as soon as the data give the green light.

In fact, July can still be considered a ‘live’ meeting if the Employment Report for June turns out to be strong. However, while we still see a distinct possibility that they may try to hike as early as July in this case, we believe that this is less likely than a delay to September.

Suppose that we get a strong June report that would lead to support for a July hike by the more hawkish members in the Committee. The doves might not be fully convinced by a single better report and prefer to see additional evidence. Given the fact that hiking without dissenters would give more confidence to the markets than a hike that shows that the Fed itself is not fully convinced, a September hike would be the likely compromise.

Note that by the September meeting, the Employment Reports for June, July and August will be available. If the current slowdown in payroll growth is only temporary, it should be evident by then. Therefore, our baseline scenario is that the Fed will hike in September.”