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16 Mar 2015
FOMC coming up this week; snapashot preview - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank noted the FOMC coming up this week and conditions that surround the event.
Key Quotes:
"The two most recent Employment Reports have revealed a much more upbeat picture of the labor market, which has boosted market expectations of a June rate hike by the Fed. This had led to a considerable rebound in US treasury yields since early February."
"Given the better-than-expected labor market data, the FOMC is likely to open the door to a June rate hike. In fact, the Fed seems intent on preparing the markets for the first rate hike. Therefore we are likely to see the removal of the ‘patient’ code word from this week’s FOMC statement."
"However, we still see two reasons why in the end the FOMC may hesitate to pull the trigger in June: deflation and the strong US dollar. For most of the year the economy will continue to be in deflation and this means that the development of core inflation and inflation expectations will be crucial in convincing the FOMC that inflation will over time return to its 2% target."
"The appreciation of the US dollar since last summer is increasingly having a negative impact on US exporters, amplifying the effects of weak global demand for US goods and services. This may explain why purchasing managers indices, durable goods orders and corporate earnings are showing a less upbeat picture than the labor market data. What’s more, the strong dollar is also reducing import prices, exerting downward pressure on core inflation. Therefore, we doubt whether the data that will be available in June will be sufficient to hike."
"So if not in June, what would be the most likely date for a rate hike? Our view that the Fed will not hike before it has completed its checklist has been expressed in a 2015Q4 rate hike call since early 2014. However, after the Bureau of Labor Statistics has rewritten history for 2014 and the unemployment rate reached the upper bound of the Fed’s target range recently, we are considering updating our call to Q3."
"If labor market data continue to be strong, and if core inflation and inflation expectations do not deteriorate, and if data on business activity do not fall further, we are likely to make this change in the near term. Alternatively, if the outlook for the economy and/or inflation deteriorates we would still be comfortable with a Q4 call."
"For now we stick to Q4. Keep in mind that it was not so long ago that many banks were shifting their forecast from 2015 to 2016. We resisted that temptation and are now resisting this one until we are fully convinced that a change is justified."
Key Quotes:
"The two most recent Employment Reports have revealed a much more upbeat picture of the labor market, which has boosted market expectations of a June rate hike by the Fed. This had led to a considerable rebound in US treasury yields since early February."
"Given the better-than-expected labor market data, the FOMC is likely to open the door to a June rate hike. In fact, the Fed seems intent on preparing the markets for the first rate hike. Therefore we are likely to see the removal of the ‘patient’ code word from this week’s FOMC statement."
"However, we still see two reasons why in the end the FOMC may hesitate to pull the trigger in June: deflation and the strong US dollar. For most of the year the economy will continue to be in deflation and this means that the development of core inflation and inflation expectations will be crucial in convincing the FOMC that inflation will over time return to its 2% target."
"The appreciation of the US dollar since last summer is increasingly having a negative impact on US exporters, amplifying the effects of weak global demand for US goods and services. This may explain why purchasing managers indices, durable goods orders and corporate earnings are showing a less upbeat picture than the labor market data. What’s more, the strong dollar is also reducing import prices, exerting downward pressure on core inflation. Therefore, we doubt whether the data that will be available in June will be sufficient to hike."
"So if not in June, what would be the most likely date for a rate hike? Our view that the Fed will not hike before it has completed its checklist has been expressed in a 2015Q4 rate hike call since early 2014. However, after the Bureau of Labor Statistics has rewritten history for 2014 and the unemployment rate reached the upper bound of the Fed’s target range recently, we are considering updating our call to Q3."
"If labor market data continue to be strong, and if core inflation and inflation expectations do not deteriorate, and if data on business activity do not fall further, we are likely to make this change in the near term. Alternatively, if the outlook for the economy and/or inflation deteriorates we would still be comfortable with a Q4 call."
"For now we stick to Q4. Keep in mind that it was not so long ago that many banks were shifting their forecast from 2015 to 2016. We resisted that temptation and are now resisting this one until we are fully convinced that a change is justified."