Fed: What is needed to secure another rate hike? - ING

James Smith, Economist at ING, suggests that the key to the next FOMC rate hike now lies with a pick-up in US activity data.

Key Quotes

“Three conditions needed to secure another rate hike from the Fed. One of these, namely an easing of financial conditions, has already been met and another, signs of a pick-up in inflation, has some scope to materialise in the short-term. Thus, assuming this remains the case, a pick-up in activity data is now key in giving the more dovish FOMC members the confidence to vote for another hike.

That said, the FOMC needs to be sure that the improvement in data can be sustained. With only one set of CPI, labour market, durable goods and retail sales data released before the next meeting in June, we feel that it will be hard to make any firm conclusions. One additional consideration is the UK referendum on EU membership, which whilst in itself is unlikely to deter the Fed from hiking, could create some market volatility around the next FOMC meeting (one week prior to the vote).

With that in mind, we still think the probability of a June hike is relatively low. But if the data shows a sustained improvement as we head into the summer, and financial conditions are stable, then we think the Fed will feel comfortable with a third quarter hike.”