29 Jan 2015
FOMC retains “patient” in statement, lines up for a probable June rate hike – ING
FXStreet (Barcelona) - Rob Carnell of ING, reviews the FOMC’s statement, viewing that Fed has lined up the June meeting for the first rate hike.
Key Quotes
“The retention of "patient" is not all that surprising, as the run of US data has been on the soft side since the last meeting, though somewhat confusingly, the Fed statement made a number of upward assessments to the economic backdrop – so at least as far as they are concerned, the economy remains on track for hikes later in the year.”
“Most notably, economic activity is now described as "expanding at a solid pace", previously it had been expanding at a "moderate" pace. Jobs growth is now described as "strong", up from "solid", and there is a new phrase which effectively states that the fall in oil prices has been beneficial, in particular, boosting household spending power.“
“In terms of the continuing undershoot of target inflation, this is now "largely" (previously "partly") due to declines in energy prices, and survey measures of inflation are said to have remained stable – unchanged from last time, though this is only true for longer term expectations, as year-ahead surveys have shown expectations plunging.”
“Despite these seeming discrepancies, the Fed is probably right to assume that the underlying path of growth remains reasonable enough to edge closer to a rate hike around the middle of the year.”
“We also think that recent data weakness is most likely a temporary soft-patch or the result of poor seasonal adjustment.”
“In short, June remains our best guess for the first Fed rate hike, absent negative shocks, and therefore, the word "patient" will need to be excised from the text at the March meeting. This could well see bond market yields return to higher levels.”
Key Quotes
“The retention of "patient" is not all that surprising, as the run of US data has been on the soft side since the last meeting, though somewhat confusingly, the Fed statement made a number of upward assessments to the economic backdrop – so at least as far as they are concerned, the economy remains on track for hikes later in the year.”
“Most notably, economic activity is now described as "expanding at a solid pace", previously it had been expanding at a "moderate" pace. Jobs growth is now described as "strong", up from "solid", and there is a new phrase which effectively states that the fall in oil prices has been beneficial, in particular, boosting household spending power.“
“In terms of the continuing undershoot of target inflation, this is now "largely" (previously "partly") due to declines in energy prices, and survey measures of inflation are said to have remained stable – unchanged from last time, though this is only true for longer term expectations, as year-ahead surveys have shown expectations plunging.”
“Despite these seeming discrepancies, the Fed is probably right to assume that the underlying path of growth remains reasonable enough to edge closer to a rate hike around the middle of the year.”
“We also think that recent data weakness is most likely a temporary soft-patch or the result of poor seasonal adjustment.”
“In short, June remains our best guess for the first Fed rate hike, absent negative shocks, and therefore, the word "patient" will need to be excised from the text at the March meeting. This could well see bond market yields return to higher levels.”