Fed: June rate hike chances growing - ING

Rob Carnell, Chief International Economist at ING affirms that recent economic data and current financial conditions increased the chances of a rate hike from the Federal Reserve at the June meeting

Key Quotes:

“With inflation heading back in the right direction, financial conditions benign and some better recent data on economic activity, the chances of a June rate hike are growing.”

“In our view, the Fed has been waiting for the perfect mix of benign financial conditions, inflation heading in the right direction, and some evidence that real activity is picking up after a very soft first quarter. And although the latter condition is still debatable, decent retail sales data released last week certainly puts 2Q16 on a firmer footing as far as activity is concerned.”

“But a June rate hike cannot be ruled out, and we will be looking at our house forecast for a 3Q16 hike as data continues to come in, to see if we need to bring this forward to June.”

“Irrespective of what actually happens in June, in the short run, financial markets will now most likely increase the chance they see of a June hike, pushing up short-term bond yields, and in turn, the USD. Whether this moves far enough to squeeze out a June hike by over-tightening financial conditions is another factor that will need careful watching.”