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14 May 2015
Fed rate hike in Sept? 2 months of decent US data needed - DB
FXStreet (Bali) - Alan Ruskin, Macro Strategist at Deustche Bank, notes that it now looks like a minimum of a couple of months of decent data in the US will be needed to lead to any return in confidence in a September rate hike by the Fed.
Key Quotes
"The Fed’s bar for tightening is however likely to be lower than the market presumes, because: i) even softer payrolls of say 150K a month will drive the unemployment rate below 5% by year-end"
"ii) real rates are extremely accommodative for an economy running with very limited spare capacity, something the Fed has been at pains to impress upon the market"
"iii) provided the back-end is well behaved, tightening will not lead to much slowing, but it will..."
"iv) expose any financial excesses related to QE and zero rates, contributing to financial stability and..."
"v) allow the Fed some scope to ease from positive nominal rates if there is any genuine slowdown in the future."
"The big proviso to iv) and v) above, is that relative stability in the bond market is a necessary condition."
"Bond instability/volatility is arguably the new additional feature that could constrain the Fed and should be notched up as a USD negative factor, if it proves a persistent feature of the financial market landscape."
Key Quotes
"The Fed’s bar for tightening is however likely to be lower than the market presumes, because: i) even softer payrolls of say 150K a month will drive the unemployment rate below 5% by year-end"
"ii) real rates are extremely accommodative for an economy running with very limited spare capacity, something the Fed has been at pains to impress upon the market"
"iii) provided the back-end is well behaved, tightening will not lead to much slowing, but it will..."
"iv) expose any financial excesses related to QE and zero rates, contributing to financial stability and..."
"v) allow the Fed some scope to ease from positive nominal rates if there is any genuine slowdown in the future."
"The big proviso to iv) and v) above, is that relative stability in the bond market is a necessary condition."
"Bond instability/volatility is arguably the new additional feature that could constrain the Fed and should be notched up as a USD negative factor, if it proves a persistent feature of the financial market landscape."