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28 Jan 2015
Three issues which may dominate Fed’s discussions – KBC
FXStreet (Barcelona) - The KBC Bank Research Desk lists three main issues which might dominate Fed’s discussions and possibly trigger important changes to the FOMC’s statement.
Key Quotes
“Three issues may dominate discussions. First inflation dropped sharply in December (0.8% Y/Y from 1.3% Y/Y; mainly energy which the Fed considers a positive supply shock). Core CPI was marginally weaker at 1.6% Y/Y from 1.7% Y/Y. Nothing to get worried about. More contentious were the weak AHE in December (-0.2% M/M) and the downward revision to 0.2% M/M of the November figure.”
“Also inflation expectations dropped quite substantially. So, on inflation the FOMC statement might be more dovish.”
“Doves will argue that absence of wage pressure and low inflation (expectations) point to the need of a delay in the lift-off.”
“A second issue is the stronger USD and the situation outside the US. We don’t expect a reference to the strong USD in the statement, but if it would, it’s a dovish signal. The economy outside the US is probably still considered weak, but not materially different from December”
“EMU QE is a final issue. Reason enough to delay a lift-off or an argument to go faster (less slump in the EMU economy)?”
“These issues could trigger important changes to the statement, but we think the Fed will stick to the view that they can be patient in normalizing policy further (ie unchanged in March/April). Time is on their side.”
“Our scenario remains a June lift-off. Markets are more dovish (Jan2016).”
Key Quotes
“Three issues may dominate discussions. First inflation dropped sharply in December (0.8% Y/Y from 1.3% Y/Y; mainly energy which the Fed considers a positive supply shock). Core CPI was marginally weaker at 1.6% Y/Y from 1.7% Y/Y. Nothing to get worried about. More contentious were the weak AHE in December (-0.2% M/M) and the downward revision to 0.2% M/M of the November figure.”
“Also inflation expectations dropped quite substantially. So, on inflation the FOMC statement might be more dovish.”
“Doves will argue that absence of wage pressure and low inflation (expectations) point to the need of a delay in the lift-off.”
“A second issue is the stronger USD and the situation outside the US. We don’t expect a reference to the strong USD in the statement, but if it would, it’s a dovish signal. The economy outside the US is probably still considered weak, but not materially different from December”
“EMU QE is a final issue. Reason enough to delay a lift-off or an argument to go faster (less slump in the EMU economy)?”
“These issues could trigger important changes to the statement, but we think the Fed will stick to the view that they can be patient in normalizing policy further (ie unchanged in March/April). Time is on their side.”
“Our scenario remains a June lift-off. Markets are more dovish (Jan2016).”