21 May 2015
Fed Minutes confirm no hike in June – ING
FXStreet (Barcelona) - Rob Carnell, Chief International Economist at ING, comments on the key findings from the FOMC Meeting Minutes, noting that the Fed requires more data to begin the rate normalization process.
Key Quotes
“Probably the main takeaway from the April minutes was the sense of uncertainty many members felt following the weak activity during the winter months. If inflation were higher, this might have presented fewer problems, but with inflation still low, and inflation expectations remaining subdued, you get a sense from these minutes that there is no sense of urgency in removing the Fed’s zero interest rate (0-0.25% range).”
“There was, also unusually, direct reference to the negative impact of the dollar’s appreciation on the trade sector, which suggests that further appreciation will play a dampening role in the pace of the Fed’s future tightening, though in a rather unhelpfully circular fashion.”
“Some participants also expressed concern that the temporary negative impacts of lower oil prices might also weigh on the economy for longer, before the positive impacts on real spending came through.”
“Also notable was the acknowledgement (at least in pockets) that wage pressures were rising in some areas. And there was also some concern over a re-run of the taper tantrum when it became clear that rates are finally about to rise – something we think is more likely the longer the Fed drags its heels over the timing of the eventual first hike.”
“All in all, a confused meeting – not surprisingly – indicating a Fed that will need to be convinced by the data in a more consistent way before they make their move. This effectively rules out a June hike – we recently pushed back our first rate hike forecast to 3Q15 – but it leaves even a July / September hike in need of further vindication from the data – something that cannot at this stage be guaranteed.”
Key Quotes
“Probably the main takeaway from the April minutes was the sense of uncertainty many members felt following the weak activity during the winter months. If inflation were higher, this might have presented fewer problems, but with inflation still low, and inflation expectations remaining subdued, you get a sense from these minutes that there is no sense of urgency in removing the Fed’s zero interest rate (0-0.25% range).”
“There was, also unusually, direct reference to the negative impact of the dollar’s appreciation on the trade sector, which suggests that further appreciation will play a dampening role in the pace of the Fed’s future tightening, though in a rather unhelpfully circular fashion.”
“Some participants also expressed concern that the temporary negative impacts of lower oil prices might also weigh on the economy for longer, before the positive impacts on real spending came through.”
“Also notable was the acknowledgement (at least in pockets) that wage pressures were rising in some areas. And there was also some concern over a re-run of the taper tantrum when it became clear that rates are finally about to rise – something we think is more likely the longer the Fed drags its heels over the timing of the eventual first hike.”
“All in all, a confused meeting – not surprisingly – indicating a Fed that will need to be convinced by the data in a more consistent way before they make their move. This effectively rules out a June hike – we recently pushed back our first rate hike forecast to 3Q15 – but it leaves even a July / September hike in need of further vindication from the data – something that cannot at this stage be guaranteed.”