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25 Apr 2016
FOMC Preview: Fed likely to stay on hold until September - Danske
Mikael Olai Milhøj, Senior Analyst at Danske Bank, expects the Federal Reserve to leave rates unchanged at 0.25-0.50% on Wednesday and also in June.
Key Quotes:
“We expect the Fed to maintain the target range at 0.25-0.50% in line with both consensus and market pricing. As there is no press conference nor updated projections, focus is on the statement. We anticipate the Fed to maintain that ‘global economic and financial developments continue to pose risks’, which was included in the statement in March.”
“The big question is whether the Fed will keep the door open for a June hike or not. Since the Fed in October implicitly preannounced the first hike in December, it seems as if it wants to prepare markets before hiking. Thus the Fed would likely want to communicate a June hike if it is still on the table, possibly by including a risk assessment stating ‘risks are nearly balanced’.”
“Given that the pickup in core inflation has not ‘proved durable’ and growth slowed in Q1, it is too early for the Fed to say that ‘risks are nearly balanced’ thereby implicitly closing the door for a June hike, in our view.”
“Our main scenario is that the Fed stays on hold until September and only hikes once this year. We continue to believe that Fed is unlikely to risk tightening too much, too quickly and it would rather postpone the hike further than tighten prematurely.”
“However, we still think markets underestimate the number of hikes as only one further hike is priced in next year, while we are looking for three hikes. The ‘dots’ from the March projections signalled two hikes this year and four next year.”
Key Quotes:
“We expect the Fed to maintain the target range at 0.25-0.50% in line with both consensus and market pricing. As there is no press conference nor updated projections, focus is on the statement. We anticipate the Fed to maintain that ‘global economic and financial developments continue to pose risks’, which was included in the statement in March.”
“The big question is whether the Fed will keep the door open for a June hike or not. Since the Fed in October implicitly preannounced the first hike in December, it seems as if it wants to prepare markets before hiking. Thus the Fed would likely want to communicate a June hike if it is still on the table, possibly by including a risk assessment stating ‘risks are nearly balanced’.”
“Given that the pickup in core inflation has not ‘proved durable’ and growth slowed in Q1, it is too early for the Fed to say that ‘risks are nearly balanced’ thereby implicitly closing the door for a June hike, in our view.”
“Our main scenario is that the Fed stays on hold until September and only hikes once this year. We continue to believe that Fed is unlikely to risk tightening too much, too quickly and it would rather postpone the hike further than tighten prematurely.”
“However, we still think markets underestimate the number of hikes as only one further hike is priced in next year, while we are looking for three hikes. The ‘dots’ from the March projections signalled two hikes this year and four next year.”