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29 Jan 2016
FOMC: Fed funds target range maintained – RBC
FXStreet (Delhi) – Laura Cooper, Economist, at RBC Economics, suggests that the recent FOMC statement acknowledged the weakening in economic activity in the fourth quarter of 2015, however, did not suggest that policymakers expect this slowing to persist in 2016 but rather anticipate that both economic growth and labour market conditions will improve.
Key Quotes
“With that said, the uncertainty about the outlook for inflation, given the persistent decline in energy prices and recent slide in market based measures of inflation expectations, raised the bar slightly for the Fed to act quickly to implement another interest rate hike.
Our forecast assumes that the US economy slowed in the fourth quarter, with Friday January 29, 2016’s report on real gross domestic product (GDP) expected to show an increase of 1.2% at an annualized rate. The outlook for the first quarter of 2016, however, is for a stronger gain of 2.5%, supported by continued robust gains in employment and low energy prices.
The key to the timing of the next hike will be developments on the inflation outlook as well as the Fed’s assessment of how international and financial market developments are affecting the economic outlook. A strengthening in the economy’s momentum and persistent strong job gains will likely allay the Fed’s concerns that the inflation rate will fall short of its medium term target and support its assessment that the economy will continue to grow even with “gradual adjustments in the stance of monetary policy.”
While the statement did not weigh significantly against a March rate hike, such a move would be contingent on a reduction in volatility in financial markets and an improvement in sentiment about the global economic outlook. Thus, further action appears to be dependent not only on domestic data but also on the tone of reports from others.”
Key Quotes
“With that said, the uncertainty about the outlook for inflation, given the persistent decline in energy prices and recent slide in market based measures of inflation expectations, raised the bar slightly for the Fed to act quickly to implement another interest rate hike.
Our forecast assumes that the US economy slowed in the fourth quarter, with Friday January 29, 2016’s report on real gross domestic product (GDP) expected to show an increase of 1.2% at an annualized rate. The outlook for the first quarter of 2016, however, is for a stronger gain of 2.5%, supported by continued robust gains in employment and low energy prices.
The key to the timing of the next hike will be developments on the inflation outlook as well as the Fed’s assessment of how international and financial market developments are affecting the economic outlook. A strengthening in the economy’s momentum and persistent strong job gains will likely allay the Fed’s concerns that the inflation rate will fall short of its medium term target and support its assessment that the economy will continue to grow even with “gradual adjustments in the stance of monetary policy.”
While the statement did not weigh significantly against a March rate hike, such a move would be contingent on a reduction in volatility in financial markets and an improvement in sentiment about the global economic outlook. Thus, further action appears to be dependent not only on domestic data but also on the tone of reports from others.”