19 Feb 2015
FOMC less hawkish but June hike still on the table – Scotiabank
FXStreet (Barcelona) - Camilla Sutton CFA, CMT, Chief FX Strategist at Scotiabank, summarizes the FOMC Minutes, while viewing that in spite of the Minutes being less hawkish, a mid-year rate hike by Fed is still on the table.
Key Quotes
“our core takeaway is that the minutes were less hawkish than we had expected but a June hike is still a potential as long as labour metrics hold and inflation does not fall”
“Neutral:
Data (neutral): the Fed is data dependent and will shift course with the data. Watch: labour and inflation data closely from here.
International developments (neutral): the Fed sees the risk to US growth as lower, but noted that lower growth in China and risks around global disinflation, the Middle East, Ukraine and Greece are all important.”
“Dovish:
Patience (dovish): there appear to be significant concerns around removing the word patience for fear of the message and potential response.
Inflation (dovish): the Fed noted that the downside risk to inflation forecast have increased due to softening on core.
Rate increase (dovish): many participants are concerned with premature rate increase; with the balance of risks between too early and too late seeming to favour erring on the side of too late.”
“Hawkish:
Conditions for a hike (hawkish): include a) further improvement in labour, which we have subsequently seen with the strong nonfarm print; b) stable or rising levels of core PCE inflation (as well as a broadening of inflation metrics to include trimmed mean metrics). The views on wage growth seemed somewhat mixed.
The USD (hawkish): the strength in the USD is a restraint on exports ‐ but the committee did not sound particularly alarmed leaving the door open to further upside.”
Key Quotes
“our core takeaway is that the minutes were less hawkish than we had expected but a June hike is still a potential as long as labour metrics hold and inflation does not fall”
“Neutral:
Data (neutral): the Fed is data dependent and will shift course with the data. Watch: labour and inflation data closely from here.
International developments (neutral): the Fed sees the risk to US growth as lower, but noted that lower growth in China and risks around global disinflation, the Middle East, Ukraine and Greece are all important.”
“Dovish:
Patience (dovish): there appear to be significant concerns around removing the word patience for fear of the message and potential response.
Inflation (dovish): the Fed noted that the downside risk to inflation forecast have increased due to softening on core.
Rate increase (dovish): many participants are concerned with premature rate increase; with the balance of risks between too early and too late seeming to favour erring on the side of too late.”
“Hawkish:
Conditions for a hike (hawkish): include a) further improvement in labour, which we have subsequently seen with the strong nonfarm print; b) stable or rising levels of core PCE inflation (as well as a broadening of inflation metrics to include trimmed mean metrics). The views on wage growth seemed somewhat mixed.
The USD (hawkish): the strength in the USD is a restraint on exports ‐ but the committee did not sound particularly alarmed leaving the door open to further upside.”