15 Jun 2015
September most likely for Fed rate hike – Danske
FXStreet (Barcelona) - Senior Analysts at Danske Bank, presents their base case for the Fed dots, US rate hike and the FOMC Minutes.
Key Quotes
“As usual, the updated ‘dots’, which show the FOMC members’ projections of the Fed funds rate for the current and coming two years, will be at the centre of attention. The previous projections were released 18 March and the incoming data since then have been mixed, with downside surprises in April and May while the most recent data have been more upbeat.”
“We believe that the mixed data have heightened FOMC members’ sense of uncertainty on the economic outlook and in response, we believe that a number of the dovish to centric members will have lowered their expected path for the Fed funds rate. How many is key to the market interpretation of the likelihood of a September lift-off.”
“Our base case is that one member will lower his projection from one to zero hikes this year, which will leave the three most dovish members of the FOMC, Evans, Rosengren and Kocherlakota, with a lift-off date next year. On top of this, two members are likely to take down their projections from one to two hikes this year. In March, 14 out of the 17 members had pencilled in two hikes or more this year but that number will then drop to 12 in June.”
“This would still send a message that September is the most likely date for lift-off. The risk is that more than two of the centric members take down their rate path this year, which would start fuelling doubts about a September lift-off.”
“With recent data coming in strong, we believe that most members should feel confident in the Fed’s base case, that a significant part of the weakness in Q1 was caused by transitory factors.”
“Thus we believe that Chair Yellen, and with her the majority of the voting members of the FOMC, will continue to pencil in two hikes this year. This should also keep the median projected Fed funds rate unchanged at 0.625% in June but the risk is that it moves to 0.375%.”
Key Quotes
“As usual, the updated ‘dots’, which show the FOMC members’ projections of the Fed funds rate for the current and coming two years, will be at the centre of attention. The previous projections were released 18 March and the incoming data since then have been mixed, with downside surprises in April and May while the most recent data have been more upbeat.”
“We believe that the mixed data have heightened FOMC members’ sense of uncertainty on the economic outlook and in response, we believe that a number of the dovish to centric members will have lowered their expected path for the Fed funds rate. How many is key to the market interpretation of the likelihood of a September lift-off.”
“Our base case is that one member will lower his projection from one to zero hikes this year, which will leave the three most dovish members of the FOMC, Evans, Rosengren and Kocherlakota, with a lift-off date next year. On top of this, two members are likely to take down their projections from one to two hikes this year. In March, 14 out of the 17 members had pencilled in two hikes or more this year but that number will then drop to 12 in June.”
“This would still send a message that September is the most likely date for lift-off. The risk is that more than two of the centric members take down their rate path this year, which would start fuelling doubts about a September lift-off.”
“With recent data coming in strong, we believe that most members should feel confident in the Fed’s base case, that a significant part of the weakness in Q1 was caused by transitory factors.”
“Thus we believe that Chair Yellen, and with her the majority of the voting members of the FOMC, will continue to pencil in two hikes this year. This should also keep the median projected Fed funds rate unchanged at 0.625% in June but the risk is that it moves to 0.375%.”