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16 Mar 2015
FOMC Preview - SocGen
FXStreet (Bali) - This week, the US will likely enter a new phase of the monetary policy cycle, notes Societe Generale.
Key Quotes
"We expect the FOMC do drop the “patient” language on Wednesday, which would mean that from June onwards every meeting is in play for a potential rate increase. At the same time, we look for the dots to drift slightly lower on the back of downside inflation risks, limiting any potential blow to financial conditions. We now expect only two hikes this year, one in June and one in Q4."
"One can never be sure of anything, but we would put the probability of the Fed dropping the “patient” language above 95%. This will end an era of forward guidance and mark a shift to full data dependency. While nothing is pre-determined beyond this meeting, and Janet Yellen will offer no hints of when the next rate hike may be coming, we expect that the data will ultimately meet the conditions for a June rate hike."
"We believe that those conditions include further progress on the labor market, data consistent with above-trend growth, and confidence that inflation will return to two percent over the medium term. Importantly, the Fed is more concerned about the inflation outlook than about current inflation. To the extent that it views any weakness in core inflation as transitory, it should not constitute an impediment to lifting rates. We believe that a June liftoff would be appropriate as the labor market reaches full employment, but the low inflation environment – which largely reflects international developments - does allow the Fed to move less aggressively thereafter. As a result, we anticipate only one more rate hike this year, most likely in Q4."
Key Quotes
"We expect the FOMC do drop the “patient” language on Wednesday, which would mean that from June onwards every meeting is in play for a potential rate increase. At the same time, we look for the dots to drift slightly lower on the back of downside inflation risks, limiting any potential blow to financial conditions. We now expect only two hikes this year, one in June and one in Q4."
"One can never be sure of anything, but we would put the probability of the Fed dropping the “patient” language above 95%. This will end an era of forward guidance and mark a shift to full data dependency. While nothing is pre-determined beyond this meeting, and Janet Yellen will offer no hints of when the next rate hike may be coming, we expect that the data will ultimately meet the conditions for a June rate hike."
"We believe that those conditions include further progress on the labor market, data consistent with above-trend growth, and confidence that inflation will return to two percent over the medium term. Importantly, the Fed is more concerned about the inflation outlook than about current inflation. To the extent that it views any weakness in core inflation as transitory, it should not constitute an impediment to lifting rates. We believe that a June liftoff would be appropriate as the labor market reaches full employment, but the low inflation environment – which largely reflects international developments - does allow the Fed to move less aggressively thereafter. As a result, we anticipate only one more rate hike this year, most likely in Q4."