Fed’s members stand united, December more likely for another hike - Commerzbank

Both at the Jackson Hole symposium and thereafter, the Fed’s leaders demonstrated that they stand united, noted Bernd Weidensteiner, analyst at Commerzbank. Hawks are dominating the debate, however, the analyst said December is the more likely meeting for the next rate hike by the Fed. 

Key Quotes

“The relevance of the data to monetary policy was again emphasised, and today’s employment report in particular should play an important role. However, we still believe December is the more likely meeting for the next rate hike by the Fed.”

“Once again, the hawks are dominating the debate. But this does not mean that a move in September is a foregone conclusion. Amongst FOMC members, there are roughly equal numbers of doves and hawks which want to win over those in the “centre” and Yellen and Dudley both stand in the centre.”

“A strong August employment report could tip the scales towards the hawks. But we are sceptical whether the data will really allay all doubts. Indeed, payroll gains are likely to turn out noticeably lower than in June and July and, due to a negative calendar effect, wages are likely to rise less than broadly expected.” 

“The surprisingly weak outturn of the ISM index for manufacturing which was released yesterday also argues for waiting a little bit longer. The ISM dropped to 49.4 in August, the first sub-50 print in six months. The Fed’s communication campaign may therefore keep September alive as an option. But given the cautiousness the Fed has shown in recent months, and due to the fact that the hawks are louder but do not necessarily reflect the majority view of the FOMC, we still think the Fed is more likely to remain on hold until December.”