15 Dec 2015
FOMC Preview: Looking past the first rate hike - SocGen
FXStreet (Delhi) – Research Team at Societe Generale, suggests that the outcome of the next week’s FOMC meeting has been well telegraphed and a rate hike is a near-certain outcome.
Key Quotes
“The Fed will also telegraph that subsequent hikes will be data dependent and likely very gradual. In a nutshell, we believe that the statement and press conference will play a more prominent role than the Summary of Economic Projections, or the dots in particular. We discuss the likely changes below:
FOMC statement: All the "action’ will be in the third paragraph which describes the forward guidance on rates. We expect changes along the line of those shown in figure 1 below. There are two key points that the FOMC will likely want to underscore in this paragraph. First, that the subsequent hikes will be data dependent, and this will continue to include not only economic but also financial variables. Second, that based on its expectations for the above, the pace of hikes is likely to be gradual.
Press conference: Chair Yellen has to strike a delicate balance between sounding constructive enough on the economy to justify the hike, and yet not sounding so constructive that the market extrapolates a steeper tightening path. How will she pull it off? First, by highlighting the weakness of the Phillips Curve which means that even in the face of shrinking labor market slack, inflation is likely to remain low. Second, by tying the projected rate path to the real neutral rate.”
Key Quotes
“The Fed will also telegraph that subsequent hikes will be data dependent and likely very gradual. In a nutshell, we believe that the statement and press conference will play a more prominent role than the Summary of Economic Projections, or the dots in particular. We discuss the likely changes below:
FOMC statement: All the "action’ will be in the third paragraph which describes the forward guidance on rates. We expect changes along the line of those shown in figure 1 below. There are two key points that the FOMC will likely want to underscore in this paragraph. First, that the subsequent hikes will be data dependent, and this will continue to include not only economic but also financial variables. Second, that based on its expectations for the above, the pace of hikes is likely to be gradual.
Press conference: Chair Yellen has to strike a delicate balance between sounding constructive enough on the economy to justify the hike, and yet not sounding so constructive that the market extrapolates a steeper tightening path. How will she pull it off? First, by highlighting the weakness of the Phillips Curve which means that even in the face of shrinking labor market slack, inflation is likely to remain low. Second, by tying the projected rate path to the real neutral rate.”
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