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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Daily Insight - FOMC to signal uncertainty about rate lift-off - 27 October 2015
growth in the first half of the year. Fed doves will be more inclined to assess how this all works out for the economy and particularly for the inflation outlook. What to watch in the FOMC statement The tone on the labour market will offer important guidance on whether the FOMC will delay the rate hike into 2016. We think that the reference to “solid” job gains will be dropped and replaced by “moderate” job gains. We don’t expect changes in the language on inflation, since the tone here was already cautious. To try to reduce the outspoken divisions between FOMC members, we think that the language referring to uncertainty on global economic and financial market developments will remain in place.
Eurozone: GDP growth and composite PMI Index
% qoq
60
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0
55 50 45 40 35 30 04 05 06 07 08 09 10 11 12 13 14 15 16 GDP (rhs)
Composite PMI (lhs)
Source: Thomson Reuters Datastream
Germany’s Ifo edges lower … Germany’s Ifo business climate indicator declined to 108.2 in October, down from 108.5 in September, which was better than the consensus forecast of a decline to 107.8. The current conditions component fell to 112.6 from 114.0, but the expectations component increased for the second consecutive month, to 103.8 from 103.3. The expectations component is the part of the survey which tends to have the best relationship with GDP growth. At its current level it is consistent with GDP growth having picked up slightly in Q3 and the start of Q4 from the 0.4% qoq recorded in Q2. It seems that the robustness of domestic demand in Germany and other European countries (which are Germany’s main export markets) are largely compensating for the slowdown in Germany’s exports to China and emerging markets in general. … resilience of domestic demand and services compensates for weakness in exports to China and EM Diverging trends between resilient domestic demand, on the one hand, and declining exports to China and emerging markets, on the other, seem to be present in the eurozone as a whole as well. Indeed, Friday’s October PMI reports showed that the eurozone’s composite PMI increased to 54.0, up from 53.6 due to a rise in the service sector PMI (to 54.2 in October, up from 53.7 in September) and stabilisation in the manufacturing PMI. Importantly, a rise in employment in the services sector lifted the employment component of the composite PMI as well, indicating that the labour market recovery is continuing.
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Daily Insight - FOMC to signal uncertainty about rate lift-off - 27 October 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Monday Monday Monday Monday Monday Monday
26/10/2015 26/10/2015 26/10/2015 26/10/2015 26/10/2015 26/10/2015
09:00:00 06:30:00 09:00:00 10:00:00 15:00:00 15:45:00
CH NL CH DE US EC
Total Sight Deposits bn Producer confidence manufacturing - index Total Sight Deposits bn Ifo - business climate - index New homes sold - % mom ECB announces weekly QE details
Tuesday Tuesday Tuesday Tuesday Tuesday
27/10/2015 27/10/2015 27/10/2015 27/10/2015 27/10/2015
10:00:00 10:30:00 13:30:00 14:00:00 15:00:00
EC GB US US US
M3 growth - % yoy GDP - % qoq New durable goods orders - % mom S&P/Case Shiller house price index Conference Board cons. confidence - index
Wednesday Wednesday Wednesday Wednesday
28/10/2015 28/10/2015 28/10/2015 28/10/2015
09:30:00 19:00:00 19:00:00 21:00:00
SE US US NZ
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
29/10/2015 29/10/2015 29/10/2015 29/10/2015 29/10/2015 29/10/2015 29/10/2015 29/10/2015
00:50:00 09:55:00 09:55:00 11:00:00 13:30:00 14:00:00 15:00:00 20:00:00
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015 30/10/2015
00:30:00 00:30:00 11:00:00 11:00:00 11:00:00 11:30:00 13:30:00 13:30:00 14:45:00 15:00:00
Period
Latest outcome
Consensus
ABN AMRO
Oct
467b 2.4
Oct Sep
108.2 -11.5
107.9 -0.6
108.1 0.1
Sep 3Q A Sep Aug Oct
4.8 0.7 -2.3 -0.2 103.0
5.0 0.6 -1.4 0.2 102.5
-1.5 103.0
Policy rate - % Policy rate - % (lower bound) Policy rate - % (upper bound) Policy rate - %
Oct 28 Oct 28 Oct 28 Oct 29
-0.35 0.00 0.25 2.75
0.00 0.25 2.68
-0.35 0.00 0.25 2.75
JP DE DE EC US DE US MX
Industrial production - % mom Unemployment - % Unemployment change - thousands Economic sentiment monitor - index GDP - % qoq annualised CPI - % yoy Pending home sales - % mom Policy rate - %
Sep P Oct Oct Oct 3Q A Oct P Sep Oct 29
-1.2 6.4 2 105.6 3.9 0.0 -1.4 3.0
-0.7 6.4 -4.1 105.0 1.8 0.2 0.5 3.0
JP JP JP EC EC EC RU US US US US
Policy rate - % Unemployment - % CPI - % yoy Core inflation - % yoy CPI - % yoy Unemployment - % Key rate % PCE deflator core - % mom PCE deflator core - % yoy Chicago Fed - business confidence - index Univ. of Michigan cons. confidence - index
Oct 30 Sep Sep Oct A Oct Sep Oct 30 Sep Sep Oct Oct F
80.0 3.40 0.2 0.9 -0.1 11.0 11.0 0.11 1.3 48.7 92.1
3.40 0.0 1.0 0.0 11.0 10.8 0.17 1.4 49.6 92.7
105.1 2.1 0.1 0.5
10.9 10.5
93.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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