Daily Insight
Group Economics Macro & Financial Markets Research
16 March 2016
Fed will likely wait to hike again…but for how long?
Despite better US data, we expect the Fed to keep its policy rate unchanged at the March meeting…
Maritza Cabezas Senior Economist
… as the impact of international developments on US economy is still uncertain
Tel: +31 20 343 5618
We think an early resumption of rate hikes could destabilise global financial
maritza.cabezas@nl.abnamro.com
markets and think the Fed will remain on hold in coming months
US retail sales disappoint in February Despite better US data, we expect the federal funds rate to remain unchanged… Since mid-February, US data has been improving, while risks related to international developments have eased. Furthermore, the Fed has come closer to its dual mandate. The labour market is nearing full employment and the Fed’s preferred measure of core inflation for is moving towards the 2% target. Nevertheless, given that this improvement follows a very weak start to the year in financial markets and global risks continue to linger, we think that FOMC policymakers will not hike rates at Wednesday’s meeting. … as impact of international developments on US economy is still uncertain As well as global risks, financial conditions have been tightening over the last year and it is still too soon to evaluate the impact on the economy. The Fed will likely maintain the phrase in the statement “the Committee will closely monitor global economic and financial developments to assess the implications for the labour market and inflation and for the balance of risks to the outlook”. This will give it more time to monitor the incoming data. Markets still not ready for rate hikes FOMC policymakers were forecasting four rate hikes in December. We think that the Fed will lower the pace of rate hikes in its dot plot in Wednesday’s FOMC meeting. Indeed, the minutes of January’s meeting Fed members showed considerable uncertainty. The factors that resulted in this uncertainty, including developments in emerging markets have not faded. Some Fed members, including Governor Brainard and President Dudley are still concerned about inflation expectations. We think an early resumption of rate hikes could trigger a new upward leg for the US dollar and destabilise global financial markets an. This could further tighten financial conditions and magnify the impact of Fed hikes.
Insights.abnamro.nl/en
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Daily Insight – Fed will likely wait to hike again‌but for how long?- 15 March 2016
US retail sales disappointing US retail sales weakened, suggesting that consumers became more cautious amid the turmoil in financial markets. February’s retail sales declined by 0.1%, after a revised 0.4% fall the previous month. Spending on gasoline showed a sharp fall, likely reflecting the price fall. At the same time, core retail sales, which are more closely related to the consumer spending component of GDP, were flat coming down from an increase of 0.2% the previous month. Furniture and electronics showed the sharpest fall.
Retail sales weak in February % 3mo3m ar
12 10 8 6 4 2 0 -2 -4 -6 09
11 Retail sales
12
13
14
15
Core reatil sales control group
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
Furthermore, consumer confidence surveys, which had been holding up well until recently, came down in February. If financial markets stabilize this could give consumer sentiment a boost. We expect consumption growth to remain the main growth driver in the coming months. However, its pace should slow down in the coming time. Given that Fed policymakers take consumption growth into account in their monetary policy decision, we think that this report will make FOMC members more cautious in resuming rate hikes in the near-term.
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Daily Insight – Fed will likely wait to hike again…but for how long?- 15 March 2016
Day
Date
Time
Country
Saturday Saturday Saturday Saturday Saturday Saturday
12/03/2016 12/03/2016 12/03/2016 12/03/2016 12/03/2016 12/03/2016
15/03/2016 15/03/2016 15/03/2016 06:30:00 06:30:00 06:30:00
CN CN CN CN CN CN
Monday Monday Monday
14/03/2016 14/03/2016 14/03/2016
07:30:00 11:00:00 13:00:00
Tuesday Tuesday Tuesday Tuesday
15/03/2016 15/03/2016 15/03/2016 15/03/2016
13:30:00 13:30:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016 16/03/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday Friday
Period
Latest outcome
Consensus
M2 money growth - % yoy New loans - CNY bn Aggregate financing - CNY bn Retail sales - ytd yoy Industrial production - ytd yoy Fixed asset investment - ytd yoy
Feb Feb Feb Feb Feb Feb
13.3 727 780 10.2 5.4 10.2
13.7 1200 1841 10.7 5.6 9.3
IN EC IN
Wholesale price index - % yoy Industrial production SA mom CPI - % yoy
Feb Jan Feb
-0.9 2.1 5.2
-0.2 -1.0 5.5
US US US JP
Retail sales - % mom Prod. prices index excl food and energy - % mom NAHB home builders' confidence index Policy rate - %
Feb Feb Mar Mar 15
-0.1 0.0 58 80.0
0.0 0.1 59 81.5
0.0
13:30:00 13:30:00 13:30:00 13:30:00 13:30:00 14:15:00 19:00:00 19:00:00
US US US US US US US US
CPI Inflation - % mom CPI Inflation - % yoy CPI excl food and energy - % mom CPI excl food and energy - % yoy Housing starts - % mom Industrial production - % mom FOMC rate decision lower bound FOMC rate decision upper bound
Feb Feb Feb Feb Feb Feb Mar 16 Mar 16
0.0 1.4 0.3 2.2 -3.8 0.9 0.25 0.50
-0.2 0.9 0.1 2.2 3.2 -0.1 0.25 0.51
-0.2 0.9 0.2 2.2 3.0
17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016 17/03/2016
00:50:00 07:30:00 09:30:00 09:30:00 09:30:00 10:00:00 11:00:00 13:00:00 13:00:00
JP NL CH CH CH NO EC GB GB
Merchandise trade exports - % yoy Unemployment rate SNB 3-month Libor Upper Target SNB 3-month Libor Lower Target SNB Sight Deposit Interest Rate Policy rate - % CPI Core yoy Policy rate - % BoE size of asset purchase programme - GBP bn
Feb Feb Mar 17 Mar 17 Mar 17 Mar 17 Feb F Mar 17 Mar
-12.9 6.5 -0.25 -1.25 -0.75 0.75 0.7 0.5 375.0
-3.8
18/03/2016 18/03/2016 18/03/2016 18/03/2016
06:30:00 11:30:00
NL RU US MX
Consumer confidence - index Key rate % Univ. of Michigan cons. confidence - index Policy rate - %
Mar Mar 18 Mar P Mar 18
-1 11.0 91.7 3.75
20:00:00
Key Economic Indicators and Events
ABN AMRO
1.2
59
0.25 0.50
-0.25 -1.25 -0.75 0.50 0.7 0.5 375.0
6.5 -0.25 -1.25 -0.75 0.50 0.7 0.5 375.0
11.0 92.3
1 11.0 91.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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