Daily Insight
Group Economics Macro & Financial Markets Research
29 October 2015
Fed leaves open possibility of December hike Maritza Cabezas Senior Economist
Fed leaves door open for December rate hike...
...which will likely depend on US data, financial conditions and EM
Tel: +31 20 343 5618
risks
maritza.cabezas@nl.abnamro.com
Our base case remains for a 2016 rate hike, but chances of an earlier move have increased
Less concerned about global developments… The FOMC statement showed that policymakers will continue to monitor the economy and developments abroad. They, however, appear to be less concerned about global developments. Indeed, the phrase which was used to explain why the FOMC refrained from hiking in September was dropped. This phrase pointed to uncertainty surrounding global economic and financial market developments and the potential implications for economic activity and inflation. This suggests that the stabilisation in sentiment towards China and emerging markets more generally may have reassured FOMC members.
…leaves door open for December rate hike The FOMC statement explicitly made reference to the December meeting as a decision moment. It asserted that in determining whether it will be appropriate to raise the target rate ‘at its next meeting’, whereas previously the statement referred to in determining "how long to maintain this target range", more generally. The FOMC will assess progress - both realized and expected – towards its maximum employment goal and 2% inflation. This suggests that it leaves the door open for a December rate hike.
FOMC statement more hawkish than expected The above two elements imply that the FOMC statement was more hawkish than expected. Financial markets priced in a higher probability of a December hike, taking the implied odds close to 50-50. This was also reflected in a stronger dollar.
Insights.abnamro.nl/en
2
Daily Insig ght - Fed lea aves open po ossibility off December hike - 29 Oc ctober 2015
Our base case is 2 2016, but chances of an ea arlier move h have risen Our ba ase scenario iss that the Fed will w wait until ne ext year beforee raising interes st rates, but the sta atement raises the chances of o a December move. Our 20116 view is base ed on a numbe er of elements. The FOMC is divided. At this s meeting Lackker continued to t vote agains st keeping ratess unchanged, while w recent sp peeches from a number of FO OMC members suggested that they had doubts about the inflation outtlook, arguing for f a us approach in n raising rates. The incoming data will have to be quite stro ong to cautiou convin nce those mem mbers that have e taken a more neutral positioon up until now. ere has been ssome softening g in recent data a. There will bee two job reporrts before the Yet the Decem mber 15-16 FO MC meeting and it’s likely tha at both reports would have to o show a signific cant improvem ent compared to the latest tw wo labour marke ket reports. Rec cently release ed data has be een at best mix xed. Consumption growth hass also lost some momentum. Third qu uarter GDP growth to be relea ased on Thursdday will likely show some slowdo own. Finally, it remains to be seen whether the pricing in oof earlier Fed ra ate hikes negativ vely impacts se entiment, which could lead to o a renewed tigghtening of fina ancial conditiions.
A div vided FOMC Hawks
Neutral
Doves
Lacker
Fischer Powell Williams
Evans Brainard Tarullo
Voting g
L Lockhart
Non vo oting
Kaplan Mester Bullard George
Source: ABN AMRO Grouup Economics
en Yelle Dudley
Harker
Kocherlakota Rosengren
3
Daily Insig ght - Fed lea aves open po ossibility off December hike - 29 Oc ctober 2015
Day
Date
T Time
Country
Key Economic E Indicators s and Events
Monday Monday Monday Monday Monday Monday
26/10/2015 2 2 26/10/2015 2 26/10/2015 2 26/10/2015 2 26/10/2015 2 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 Depos its bn Producer confiden nce manufacturing - index Total Sight Depos its bn mate - index Ifo - business clim New homes sold - % mom ECB announces weekly w QE details
Tuesday Tuesday Tuesday Tuesday Tuesday
27/10/2015 2 2 27/10/2015 2 27/10/2015 2 27/10/2015 2 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 y GDP - % qoq New durable good ds orders - % mom m S&P/Case Shiller house price index Conference Board d cons. confidence - index
Wednesday Wednesday Wednesday Wednesday
28/10/2015 2 2 28/10/2015 2 28/10/2015 2 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 2 2 29/10/2015 2 29/10/2015 2 29/10/2015 2 29/10/2015 2 29/10/2015 2 29/10/2015 2 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 3 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 30/10/2015 3 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
3.8
Oct Sep
108.5 5.7
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 - % (low wer bound) Policy rate - % (up pper 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 productiion - % mom Unemployment - % Unemployment ch hange - thousands Economic sentime ent monitor - index x GDP - % qoq annu ualised CPI - % yoy Pending home sa ales - % 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 - bus siness confidence - index Univ. of Michigan cons. c 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: Bloomb berg, Reuters, ABN N AMRO Group Economics E (we pro ovide own forecastts only for selecte ed k ey variables and a events)
nd out more abo out Group Eco onomics at: http ps://insights.a abnamro.nl/en n/ Fin
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