US: Changes in the monetary stance is still an issue - BBH

In the US, the issue is still material changes in the monetary stance and specifically, the improved growth prospects in Q2 after a disappointing Q1 (again), the strength of the non-manufacturing ISM, and the ongoing firm labor market suggests the Fed remains on course to begin shrinking its balance sheet, and continue to gradually raise interest rates, according to the research team a BBH.

Key Quotes

“No doubt Yellen will get quizzed during her appearance before Congress in her semi-annual testimony about the trajectory of monetary policy.  She should not be expected to deviate from the general thrust of her comments following the press conference after the mid-June FOMC meeting.  Nothing materially has changed.  Of note, the report to Congress ahead of her testimony argued against efforts in Congress that would require the adherence to formal decision-making rules, like the Taylor Rule, and report to Congress on deviations.”

“The June CPI due at the end of the week may also offer the Fed some support.  Core CPI fell for four months through May, as has the core PCE deflator. The FOMC minutes clearly identified a majority of officials seeing this counter-trend movement as a result of temporary factors.  The median forecast from the Bloomberg survey has the core CPI steady at 1.7% in June, though it is more likely to edge higher than fall, it would appear.”