FXStreet (Barcelona) – Signe Roed-Frederiksen, Senior Analyst at Danske Bank, shares the outlook for the Fed rate hike and further comments on what to expect from the Fed in reaction to the Greek issue.
Key Quotes
“The starting point seems to be that the Fed is ready to hike in September given the positive run of data releases recently. Asked about the probability of a September hike, Dudley stated that If the data continue to evolve in the way they have, I think September is very much in play.”
“This was followed by a Q&A on the Greek issue. Here it was clear that the Fed is focusing on financial conditions in a broad sense and the impact on the European economy from Greece. Contingent on what happens over the coming weeks or months, the Fed will monitor developments and react accordingly.”
“Our base case is a September rate hike, based on our expectation of solid economic data in the coming months, but contingent on what happens over the coming weeks, the Fed could very well choose to push the first rate hike further into the future.”
“As Dudley highlighted, it is the development in financial conditions that we have to monitor. Hence a significant tightening would likely prompt the Fed to keep their hands off the trigger. This tightening could come via the currency, wider credit spreads or lower stock markets. So far however, the financial market reaction has been relatively modest.”
“It was also clear that Dudley sees a significant risk to financial markets from a Greek exit from the euro area. Even if things don’t turn out to be as bad as he fears, it nevertheless suggests that the Fed would be deeply worried about a Greek exit from the euro area and would not want to add fuel to the fire by raising rates.”
(Market News Provided by FXstreet)