In the absence of Jon Hilsenrath, whose “post-Fed-Mortem” is strangely missing today from the WSJ (although we haven’t checked the ultra exclusive WSJ Pro), here is Goldman’s assessment, which considering who makes NY Fed policy, is even more appropriate. According to Goldman, after parsing the Fed statement, September odds have risen to 30% (from 25%), while December incremental rate odds are 40%, “implying a roughly 70% probability of at least one rate increase this year.”
Full note:
FOMC Sees Fewer Near-Term Risks
BOTTOM LINE: The FOMC indicated that near-term risks to the economic outlook have diminished, likely reflecting the recent easing in financial conditions and the improvement in economic data. We think the statement keeps open the committee’s options for a rate increase later this year, possibly as soon as September. Accordingly, we modestly raised our subjective odds of a rate hike at the September FOMC meeting to 30% from 25% previously.
MAIN POINTS:
1. The FOMC indicated that “near-term risks to the economic outlook have diminished” in its post-meeting statement, likely reflecting the improvement in incoming data and the easing in financial conditions in recent months. We see this phrase as a half step toward the “nearly balanced” language the committee used to describe the outlook late last year, and an effective way to keep its options open for action as early as the September meeting. As a result, we have raised our subjective odds of a hike at the September meeting to 30% from 25% previously; we continue to see a 40% chance that the next hike will come in December—implying a roughly 70% probability of at least one rate increase this year.
2. The remainder of the FOMC statement was roughly in line with expectations. The committee upgraded its discussion of labor market developments following the rebound in payroll growth in June, and said that overall activity was “expanding at a moderate rate”. The statement again said that “most” survey-based measures of inflation expectations were little changed; we had thought the statement would drop the “most” qualifier (added at the June meeting) in light of the pickup in the University of Michigan inflation expectations measure. Kansas City Fed President Esther George dissented in favor of a rate increase—as she did at the March and April meetings.
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