FXStreet (Córdoba) – According to analysts from Rabobank today’s minutes showed that some FOMC members the downside risks for inflation remains considerable. They think that the US central bank will raise rates only two times during 2016.
Key Quotes:
“While the minutes of the December 15-16 meeting confirmed that the FOMC was reasonably confident in its expectation that inflation would rise, over the medium term, to its 2 percent objective, for some members the risks attending their inflation forecasts remained considerable. In fact, they said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics. Therefore, they emphasized the need to monitor the progress of inflation closely and make sure that inflation would rise as projected.”
“While the dot plot released in December implies four rate hikes of a quarter this year, we have argued before that the downside risks to the Fed’s rate projections are larger than the upside risks. Therefore we think they will only hike twice.”
“The minutes of the December meeting reveal that in particular the downside risks to inflation were already a concern to some members of the FOMC. Recent developments are not likely to have eased their concerns. In fact, we have pointed out before that if the recent decline in the oil price is not reversed, year-on-year oil price changes in the coming year will continue to drag down the headline inflation rate for the US. What’s more, any further dollar appreciation would slow down the rebound in core inflation. Finally, we think that excessive amounts of discouraged workers and involuntary part-time workers will continue to hold back wage pressures.”
“To make things worse, we would also like to emphasize that there are also several downside risks to the pace of the economic recovery. First of all, the strength of the US dollar continues to be a major headwind for exporting firms, as shown by the further deterioration of the ISM manufacturing index. Secondly, the global economy continues to be weak. What’s more, the downside risks to the Chinese economy going forward may very well be underestimated by the FOMC.”
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