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16 Mar 2015
Fed might hike rates in June, but risk exist for a short delay – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team share their view regarding this week’s FOMC Meeting, and further comment that June might be favourable for a hike, but risks exist for a short delay as seen during the Fed tapering decision.
Key Quotes
“The most important event this week is the FOMC meeting followed by a press conference by Yellen. In order to maximize its room to maneuver, we expect the FOMC statement will drop the patience that has characterized its forward guidance since last December.”
“This represents an evolution in the Fed's strategy to normalize monetary policy. They have reduced the time of their forward guidance from around six months (considerable period) to two meetings (patience). Yellen has more or less executed the strategy that Bernanke outlined for tapering.”
“Shifting away from the date-dependent approach to the data-dependent has been done under Yellen's leadership.”
“The Fed's biggest concern with the shift is that the markets will misinterpret this as a sign of an imminent hike. As she did in her Congressional testimony, we expect Yellen to explain that this is not the case. Indeed the next FOMC meeting April 28-29 and there is practically no chance of a hike then. However, the June meeting, which is followed by a press conference, is a different story.”
“We continue to see June as the most likely time frame for lift-off, but recognize the risk of a short delay, as the Fed did when it began the tapering in December 2013 instead of September as many expected."
“The data-dependency comes down to largely two considerations. First is the continued improvement in the labor market, broadly understood. Second, is that the FOMC has to be confident that inflation will rise toward 2% in the medium term.”
Key Quotes
“The most important event this week is the FOMC meeting followed by a press conference by Yellen. In order to maximize its room to maneuver, we expect the FOMC statement will drop the patience that has characterized its forward guidance since last December.”
“This represents an evolution in the Fed's strategy to normalize monetary policy. They have reduced the time of their forward guidance from around six months (considerable period) to two meetings (patience). Yellen has more or less executed the strategy that Bernanke outlined for tapering.”
“Shifting away from the date-dependent approach to the data-dependent has been done under Yellen's leadership.”
“The Fed's biggest concern with the shift is that the markets will misinterpret this as a sign of an imminent hike. As she did in her Congressional testimony, we expect Yellen to explain that this is not the case. Indeed the next FOMC meeting April 28-29 and there is practically no chance of a hike then. However, the June meeting, which is followed by a press conference, is a different story.”
“We continue to see June as the most likely time frame for lift-off, but recognize the risk of a short delay, as the Fed did when it began the tapering in December 2013 instead of September as many expected."
“The data-dependency comes down to largely two considerations. First is the continued improvement in the labor market, broadly understood. Second, is that the FOMC has to be confident that inflation will rise toward 2% in the medium term.”