FXStreet (Barcelona) – Previewing the Fed meeting today, the KBC Bank Research Team believe that the policy statement will likely paint a much optimistic picture for the US economy.
Key Quotes
“The FOMC ends its two-day meeting with the publication of the statement, the economic and rate (dots) forecasts and the concluding press conference by chairwoman Yellen. The statement should be little changed except for the first paragraph that should be more optimistic on growth.”
“The labour market has recovered since the March meeting with 280K new jobs in the May report and an increase in job openings. The unemployment rate picked up to 5.5% in May, partly a result of a favourable rise in the participation rate. There were signs of wages increases (AHE, ECI) and the housing market improved too. The industrial sector however showed little to no change for the better with production down again in May and investment tepid with the earlier decline in oil affecting investments in the oil and broader industry. The strength of the dollar weighs on trade, but this effect should start fading.”
“The situation on inflation didn’t change much. Market inflation expectations barely improved and headline CPI remains close to zero, even if core CPI stands at 1.8% Y/Y. So overall the domestic economy shows signs of improvement following a long and harsh winter.”
“Combined with lingering concerns on wages and inflation, it is most likely the Fed will keep rates unchanged and wait for more evidence of improvement before starting its tightening cycle. The FOMC will stay data dependent and decide meeting after meeting whether the situation has improved enough to start its lift-off.”
“It looks unlikely they move already in July, but the September meeting (new forecasts/press conference) still qualifies as the meeting to take a turn in policy. Anyway, we expect the FOMC to keep its options open and declare itself again fully data dependent.”
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