Daily Insight
Group Economics Macro & Financial Markets Research
27 October 2015
FOMC to signal uncertainty about rate lift-off Maritza Cabezas Senior Economist Tel: +31 20 343 5618 maritza.cabezas@nl.abnamro.com
FOMC statement to signal uncertainty about timing of rate rise
We expect the Fed to delay lift-off until 2016
Germany’s Ifo only slightly lower – economy cushioned by domestic demand
Aline Schuiling Senior Economist Tel: +31 20 343 5606 aline.schuiling@nl.abnamro.com
FOMC statement to signal uncertainty about 2015 hike The Fed will meet on Wednesday to discuss monetary policy. We expect the FOMC to keep policy rates on hold at this meeting. The statement however, could deliver important guidance on the rate outlook going forward. In particular, the statement may hint that the central bank is much less certain about raising interest rates this year. Our base case is the FOMC will not raise interest rates until 2016. Uncertainty is high about the exact month, but our sense is that the first rate hike will be in June 2016. We don’t rule out a rate hike in March of next year if financial conditions stabilise and external uncertainties wane, while data continue to improve.
Delaying rate hike to 2016 seems likely The FOMC refrained from hiking in September given the uncertainty surrounding global economic and financial market developments and whether this could restrain economic activity and put downward pressure on inflation. In the meantime, this uncertainty remains, while the ECB and China’s central bank have announced easing measures. Developments in financial conditions in the US have been mixed so far. The dollar has appreciated, resulting in tighter financial conditions. Although this has been offset by the rally in equity markets, this rally has been supported by the view that the Fed would delay raising interest rates. The FOMC will need more time to see how financial conditions will evolve but easing measures by other central banks could put further upward pressure on the dollar. Meanwhile the US economic data has softened noticeably since the September meeting. After two weak job reports, the labour market does not look as solid as the previous FOMC statement noted. Weaker exports are pointing to a negative contribution of net trade to GDP growth this year. As for consumption growth, it also lost some momentum. This all suggests that that the third quarter will be a bit weaker than average
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