28 Apr 2016
Fed does little to advance June rate hike – Deutsche Bank
Research Team at Deutsche Bank, notes that the FOMC made no change in policy settings (the Kansas City Fed’s Esther George was again the lone dissenter in favour of a rate hike), so the focus has been on the accompanying FOMC statement.
Key Quotes
“A side-by-side comparison of the April FOMC statement with that issued in March reveals the following key changes:
• The phrase “global economic and financial developments continue to pose risks” was replaced with “The Committee continues to closely monitor inflation indicators and global economic and financial developments.”;
• The phrase “economic activity has been expanding at a moderate pace” was replaced with “labor market conditions have improved further even as growth in economic activity appears to have slowed”; and
• The phrase “Household spending has been increasing at a moderate rate,” was replaced with “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”
There was no re-insertion of the ‘balance of risks’ language seen prior to the December rate hike, quite probably because committee members are unable to agree on where the balance of risks lies. Following some initial volatility the market has decided that the statement was, on balance, dovish (our own Peter Hooper thinks that the market’s reaction is overdone). Certainly the statement makes no clear attempt to move market pricing towards a rate hike at the 27-28 June meeting, although neither does it rule out the possibility of a move.”
Key Quotes
“A side-by-side comparison of the April FOMC statement with that issued in March reveals the following key changes:
• The phrase “global economic and financial developments continue to pose risks” was replaced with “The Committee continues to closely monitor inflation indicators and global economic and financial developments.”;
• The phrase “economic activity has been expanding at a moderate pace” was replaced with “labor market conditions have improved further even as growth in economic activity appears to have slowed”; and
• The phrase “Household spending has been increasing at a moderate rate,” was replaced with “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”
There was no re-insertion of the ‘balance of risks’ language seen prior to the December rate hike, quite probably because committee members are unable to agree on where the balance of risks lies. Following some initial volatility the market has decided that the statement was, on balance, dovish (our own Peter Hooper thinks that the market’s reaction is overdone). Certainly the statement makes no clear attempt to move market pricing towards a rate hike at the 27-28 June meeting, although neither does it rule out the possibility of a move.”