Fed Call: No rate hikes for the foreseeable future - RBS

Research Team at RBS, suggests that the only communication following the Fed meeting this week will be the FOMC statement.

Key Quotes

“No action is expected on interest rates, nor do we expect the Committee to use the FOMC statement to set the stage for a rate hike in September. While financial markets have rebounded quickly, the downside economic (and political) risks associated with Brexit will persist, and we believe the existence of those risks will keep the Fed on hold for the foreseeable future.

We expect few changes to the statement. The characterization of the economy can be a bit more upbeat than in June, given the generally positive news reported over recent weeks (e.g., employment, ISMs, retail sales). In addition, the acceleration of economic activity (and particularly consumer spending) in Q2 noted previously in the June FOMC statement is likely to be reiterated (especially given expectations that Q2 real GDP growth may approach 3%).

The language surrounding housing ("continued to improve"), net exports (drag has lessened), and business investment ("soft") all still look appropriate. We also do not believe the characterization of inflation and/or inflation expectations needs to (or will) be altered. Markets will look closely to the second paragraph discussing the Fed’s outlook.

We expect no changes to the Fed’s expectation for moderate growth, further improvement in the labor market, and a return in inflation to 2% over the median term. Most important, we do not anticipate that the key sentence concerning global developments will be altered. Instead, we expect the Fed to indicate once again that "The Committee continues to closely monitor inflation indicators and global economic and financial developments.”