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1 Sep 2015
Fed: Likely to wait till December for rate hike – Danske Bank
FXStreet (Bali) – Research team at Danske Bank, notes that tighter labour market conditions in U.S. are likely to prevail and Fed will wait until December to hike rates and use the coming months to build confidence that inflation is heading higher.
Key Quotes
“Average hourly earnings are still not showing any substantial pickup in wage inflation contrary to what could have been expected given the tighter labour market.”
“We estimate that the unemployment rate declined to 5.2% from 5.3% and is thereby approaching the Fed’s NAIRU of 5%.”
“US data continue to show progress, best summarised by the upward revision of Q2 GDP growth to 3.7% q/q AR from 2.3%. We expect GDP growth to cool somewhat in Q3, as companies reduce the pace of inventory accumulation but we continue to see GDP growth above trend this year and next. This implies that downward pressure on the unemployment rate will continue.”
“In particular, we expect unemployment to undershoot the FOMC’s projection even though our GDP growth projections are in line with the FOMC’s.”
“One headwind to our Fed call is the low level of inflation. Following the Jackson Hole Symposium this weekend, we are more confident that the Fed will look through the current low level of inflation and focus on the slack in the economy to judge where future inflation is heading. This said, we believe the Fed will wait until December to hike rates and use the coming months to build confidence that inflation is heading higher.”
Key Quotes
“Average hourly earnings are still not showing any substantial pickup in wage inflation contrary to what could have been expected given the tighter labour market.”
“We estimate that the unemployment rate declined to 5.2% from 5.3% and is thereby approaching the Fed’s NAIRU of 5%.”
“US data continue to show progress, best summarised by the upward revision of Q2 GDP growth to 3.7% q/q AR from 2.3%. We expect GDP growth to cool somewhat in Q3, as companies reduce the pace of inventory accumulation but we continue to see GDP growth above trend this year and next. This implies that downward pressure on the unemployment rate will continue.”
“In particular, we expect unemployment to undershoot the FOMC’s projection even though our GDP growth projections are in line with the FOMC’s.”
“One headwind to our Fed call is the low level of inflation. Following the Jackson Hole Symposium this weekend, we are more confident that the Fed will look through the current low level of inflation and focus on the slack in the economy to judge where future inflation is heading. This said, we believe the Fed will wait until December to hike rates and use the coming months to build confidence that inflation is heading higher.”