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25 May 2015
Fed optimistic over a rate hike – ANZ
FXStreet (Barcelona) - The team at ANZ believes that the recent US CPI data and Yellen’s speech indicates that the Fed is more tilted towards a rate hike than postponing it, further forecasting September to be the likely timing for the rate-liftoff.
Key Quotes
“We noted on Friday that US activity data were showing pretty lukewarm signs of rebounding from the soft Q1, and we haven’t received any more information since then to update that view. But the major news over the weekend was more evidence that US underlying inflation pressures are lifting. Core inflation rose 0.3% m/m in April. While the annual pace of inflation remained unchanged at 1.8%, and only 0.1 percentage points above market expectations, core inflation is now running at 2.6% on an annualised three-monthly basis. While activity softened in Q1, indicators for the US labour market generally remained solid, with jobless claims sitting near a 15-year low.”
“A number of commentators already feel that the Fed has achieved the employment part of its dual-mandate (although the Fed themselves still feel there is some “slack”). Soft inflation and recent wobbly activity data looked to be delaying Fed policy normalisation. But if inflation is now lifting, the Fed may soon get underway. We still feel this is most likely to happen in September.”
“FOMC Chair Yellen spoke over the weekend and reaffirmed that if the economy evolves as expected then: “it will be appropriate at some point this year to take the initial step to raise the federal funds rate”.”
“Importantly, Yellen also suggested that the costs of delaying the commencement of policy normalisation outweighed the benefits, noting that “delaying action to tighten monetary policy until employment and inflation are already back to our [FOMC] objectives would risk overheating the economy.” A few more solid inflation outcomes and it could be game-on.”
Key Quotes
“We noted on Friday that US activity data were showing pretty lukewarm signs of rebounding from the soft Q1, and we haven’t received any more information since then to update that view. But the major news over the weekend was more evidence that US underlying inflation pressures are lifting. Core inflation rose 0.3% m/m in April. While the annual pace of inflation remained unchanged at 1.8%, and only 0.1 percentage points above market expectations, core inflation is now running at 2.6% on an annualised three-monthly basis. While activity softened in Q1, indicators for the US labour market generally remained solid, with jobless claims sitting near a 15-year low.”
“A number of commentators already feel that the Fed has achieved the employment part of its dual-mandate (although the Fed themselves still feel there is some “slack”). Soft inflation and recent wobbly activity data looked to be delaying Fed policy normalisation. But if inflation is now lifting, the Fed may soon get underway. We still feel this is most likely to happen in September.”
“FOMC Chair Yellen spoke over the weekend and reaffirmed that if the economy evolves as expected then: “it will be appropriate at some point this year to take the initial step to raise the federal funds rate”.”
“Importantly, Yellen also suggested that the costs of delaying the commencement of policy normalisation outweighed the benefits, noting that “delaying action to tighten monetary policy until employment and inflation are already back to our [FOMC] objectives would risk overheating the economy.” A few more solid inflation outcomes and it could be game-on.”