27 Jan 2015
Fed unlikely to hike rates till year-end – Rabobank
FXStreet (Barcelona) - According to Jane Foley, Senior Currency Strategist at Rabobank, the disinflationary pressure combined with the dovish make-up of FOMC suggests that the Fed might hike rates only during the end of this year.
Key Quotes
“US CPI inflation fell to 0.8% y/y in December from 1.3% y/y in November. Unless there is a rapid rebound in oil prices, our model suggests that CPI inflation in the US could fall below the 0.5% y/y level in the coming months.”
“[..] wage growth is showing signs of slackening. The December labour data report showed average hourly earnings growth slowing to 1.7% y/y from 1.9% y/y. The January Beige Book confirmed that significant wage pressures are limited to workers with specialised skills.”
“In recent months the Federal Reserve’s ultra-dove Kocherlakota has forcefully argued against a tightening in Fed policy in 2015 on the basis that inflation is unlikely to push back to the 2% level for some years. Kocherlakota is not a voting member of the FOMC in 2015. However, insofar as hawks Plosser and Fisher have also been rotated out of the voting committee, the make-up of the FOMC has tilted towards the dovish camp. This factor, combined with disinflationary forces may imply there is greater force behind the Fed’s pledge to be ‘patient’ on monetary policy decisions at the January 28th meeting.”
“For some time we have maintained the view that the Fed are unlikely to hike policy until the end of the year. Insofar as the market is approaching this week’s FOMC meeting heavily long USDs and very short EURs, some profit-taking is perhaps inevitable in EUR/USD.”
Key Quotes
“US CPI inflation fell to 0.8% y/y in December from 1.3% y/y in November. Unless there is a rapid rebound in oil prices, our model suggests that CPI inflation in the US could fall below the 0.5% y/y level in the coming months.”
“[..] wage growth is showing signs of slackening. The December labour data report showed average hourly earnings growth slowing to 1.7% y/y from 1.9% y/y. The January Beige Book confirmed that significant wage pressures are limited to workers with specialised skills.”
“In recent months the Federal Reserve’s ultra-dove Kocherlakota has forcefully argued against a tightening in Fed policy in 2015 on the basis that inflation is unlikely to push back to the 2% level for some years. Kocherlakota is not a voting member of the FOMC in 2015. However, insofar as hawks Plosser and Fisher have also been rotated out of the voting committee, the make-up of the FOMC has tilted towards the dovish camp. This factor, combined with disinflationary forces may imply there is greater force behind the Fed’s pledge to be ‘patient’ on monetary policy decisions at the January 28th meeting.”
“For some time we have maintained the view that the Fed are unlikely to hike policy until the end of the year. Insofar as the market is approaching this week’s FOMC meeting heavily long USDs and very short EURs, some profit-taking is perhaps inevitable in EUR/USD.”