FOMC meeting review: Dot-plots suggest lower possibility of a September liftoff – Nomura

FXStreet (Barcelona) – Economists at Nomura offer their observations on the FOMC Meeting and the rate outlook ahead, noting that in spite of the Fed dot-path suggesting a lower possibility of a September rate hike, the expected rebound in US data will maintain the expected Q3 liftoff timing.

Key Quotes

“The monetary policy statement released at the conclusion of the 16-17 June FOMC was little changed. As expected, the Committee upgraded its assessment on the economy on the back of recently more positive data. Otherwise, the statement was unchanged and reaffirmed its decision to leave the federal funds rate unchanged at 0-0.25%.”

“As for the Summary Economic Projections, the Committee’s outlook on near-term growth was a bit more pessimistic than we had anticipated, as the central tendency range was downgraded to 1.8% to 2.0% from 2.3% to 2.7%. Coupled with the upward revision to the unemployment rate, the Committee appeared to be broadly less optimistic about the rebound in near-term growth and saw more slack in the economy. Its projection for inflation, as expected, was materially unchanged throughout the outlook.”

“The median of the federal funds rate “dots” evolved broadly in line with our expectations as the median for 2015 remained unchanged at 0.625%, while the dots for the out years were lowered by 25bp. However, the “longer-run” rate remained unchanged at 3.75%. Although the median was unchanged in 2015, the distribution of dots showed that 7 out of the 17 participants now expect one rate hike or less, which is consistent with a less optimistic outlook for 2015.”

“Last, Chair Yellen reiterated the data dependence of monetary policy and that the pace of tightening will likely be gradual once normalization begins. In our view, notably the distribution of “dots” in 2015, lowered the probability of liftoff in September and raised it for December. However, on balance, given our outlook for the economic rebound to firm in coming months, we continue to believe that the most likely timing of liftoff is still September.”

Economists at Nomura offer their observations on the FOMC Meeting and the rate outlook ahead, noting that in spite of the Fed dot-path suggesting a lower possibility of a September rate hike, the expected rebound in US data will maintain the expected Q3 liftoff timing.

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