17 Dec 2014
Fed may keep rates unchanged till 2015 end – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, expects that Fed will maintain its “considerable time” message today, further anticipating the Fed to keep rates on hold until the end of 2015.
Key Quotes
“The better than expected US November non-farm payrolls data brought additional evidence of the improvement in the US economic backdrop. In line with the rise in job creation, earnings also pushed higher. In tune with this, core inflation is still rising at a moderate pace. This afternoon’s release of US core CPI is expected to hold steady at 1.8% y/y while weak food and energy prices are expected to take the headline CPI rate down to 1.4% y/y.“
“Given the backdrop of moderate inflation pressures in the US the Fed has plenty of reason to tread carefully before hiking interest rates.”
“In our view removing the ‘considerable time’ phrase from the FOMC statement today would suggest that the committee is attaching less weight to the price stability side of its dual employment/inflation mandate. Rather than send this message, we expect that the Fed will maintain its ‘considerable time’ message for the time being. We do not expect that the Fed will actually hike interest rates until the end of 2015.”
“Although the Fed are mandated to set policy to suit the domestic US economy, the committee are aware that it is almost inevitable that any adjustment will trigger volatility in Emerging Markets. Which EM nations are most vulnerable to capital outflows is a function of the domestic fundamentals.”
“We have been arguing that the adjustments made by investors during the ‘taper tantrums’ of 2013 (when the market priced in the end of QE by the Fed) could limit the impact of a rate hike and that the easy monetary policies maintained by the ECB and the BoJ will sooth concerns in some countries. That said, the current sense of unease in markets, coupled with the disappointing pace of global growth could impact the guidance offered by the Fed today.”
“Since we are of the view that the Fed is unlikely to hike rates for year, we have also been warning of risks of USD pullbacks. That said, we remain construction on the USD vs. both the JPY and the EUR medium-term and forecast moves towards EUR/USD1.20 and USD/JPY125 on a 12 mth view.”
Key Quotes
“The better than expected US November non-farm payrolls data brought additional evidence of the improvement in the US economic backdrop. In line with the rise in job creation, earnings also pushed higher. In tune with this, core inflation is still rising at a moderate pace. This afternoon’s release of US core CPI is expected to hold steady at 1.8% y/y while weak food and energy prices are expected to take the headline CPI rate down to 1.4% y/y.“
“Given the backdrop of moderate inflation pressures in the US the Fed has plenty of reason to tread carefully before hiking interest rates.”
“In our view removing the ‘considerable time’ phrase from the FOMC statement today would suggest that the committee is attaching less weight to the price stability side of its dual employment/inflation mandate. Rather than send this message, we expect that the Fed will maintain its ‘considerable time’ message for the time being. We do not expect that the Fed will actually hike interest rates until the end of 2015.”
“Although the Fed are mandated to set policy to suit the domestic US economy, the committee are aware that it is almost inevitable that any adjustment will trigger volatility in Emerging Markets. Which EM nations are most vulnerable to capital outflows is a function of the domestic fundamentals.”
“We have been arguing that the adjustments made by investors during the ‘taper tantrums’ of 2013 (when the market priced in the end of QE by the Fed) could limit the impact of a rate hike and that the easy monetary policies maintained by the ECB and the BoJ will sooth concerns in some countries. That said, the current sense of unease in markets, coupled with the disappointing pace of global growth could impact the guidance offered by the Fed today.”
“Since we are of the view that the Fed is unlikely to hike rates for year, we have also been warning of risks of USD pullbacks. That said, we remain construction on the USD vs. both the JPY and the EUR medium-term and forecast moves towards EUR/USD1.20 and USD/JPY125 on a 12 mth view.”