9 Jul 2015
Fed creeping closer to rate lift-off – ING
FXStreet (Barcelona) - Rob Carnell, Chief International Economist at ING, offers his observations on the FOMC Minutes and the Fed rate hike outlook, noting that the a September rate hike remains a strong possibility.
Key Quotes
“Perhaps the key phrase of the minutes from the May FOMC meeting were “Members thus saw economic conditions as continuing to approach those consistent with warranting a start to the normalisation of the stance of monetary policy”. Coupled with “Most expected that labour slack would be largely eliminated around year-end”, though needed “…more information on developments in the labour market to establish a solid basis for assessing whether labour market conditions had improved sufficiently to initiate tightening”."
“The exact timing of the Fed’s rate decision clearly remains a data dependent one, though the current run of data, in particular on the labour market and unemployment rate, seems sufficiently fast that a September hike remains a strong possibility. The Fed has been consistently under-predicting improvements in the unemployment rate, and by September, the rate should be comfortably within the 5.0-5.2% range they typically consider consistent with full employment.”
“What is perhaps remarkable is that Fed funds futures markets and 2Y bond yields are pricing in so little tightening. An abrupt adjustment to price in more tightening during the coming weeks and months seems quite possible.”
Key Quotes
“Perhaps the key phrase of the minutes from the May FOMC meeting were “Members thus saw economic conditions as continuing to approach those consistent with warranting a start to the normalisation of the stance of monetary policy”. Coupled with “Most expected that labour slack would be largely eliminated around year-end”, though needed “…more information on developments in the labour market to establish a solid basis for assessing whether labour market conditions had improved sufficiently to initiate tightening”."
“The exact timing of the Fed’s rate decision clearly remains a data dependent one, though the current run of data, in particular on the labour market and unemployment rate, seems sufficiently fast that a September hike remains a strong possibility. The Fed has been consistently under-predicting improvements in the unemployment rate, and by September, the rate should be comfortably within the 5.0-5.2% range they typically consider consistent with full employment.”
“What is perhaps remarkable is that Fed funds futures markets and 2Y bond yields are pricing in so little tightening. An abrupt adjustment to price in more tightening during the coming weeks and months seems quite possible.”