Yellen’s remarks consistent with the recent FOMC outcome - ANZ

Research Team at ANZ, notes that the Fed Chair Janet Yellen’s remarks to the House Financial Panel were consistent with the recent FOMC outcome with regards to the monetary policy outlook.

Key Quotes

“Notably, she said the jobless rate is close to inferring full employment, and should fall further. However, productivity and overall growth has been disappointing and they are not seeing upward pressure on inflation. There is no fixed timetable to raise rates; however, a majority of FOMC members see a rate rise this year. The market will not move to seriously price that possibility in until the US election is out of the way (8 November). But even then, they’ll keep a wary eye on the data and event calendar – throughout 2016 mixed data and wobbly markets have conspired to keep the Fed on hold despite repeated assertions that their fingers remain on the trigger, so it would not be unreasonable to conclude that this pattern may well continue.

Although we are indeed predicting a Fed hike in December, it is probably fair to say that there are fewer potential candidates to derail our prediction that the Reserve Bank of NZ will cut the OCR again in November. The New Zealand economy is growing strongly but outside of the construction sector, inflation remains out for the count, and the front-line anecdotes we are hearing are not suggestive of an imminent turn. That said, the labour market is clearly getting tighter, and we do expect wage growth to start to respond in time.”