Fed rate hike likely in September – NAB

FXStreet (Barcelona) - Tony Kelly, Senior Economist at National Australia Bank, argues that the Fed might wait several months for labour market indicators to solidify before hiking rates, further predicting September to be likely timing for rate lift-off.

Key Quotes

“Following the Fed’s March policy meeting we changed our forecast track for the fed funds rate to incorporate a slower pace of policy tightening. At the time we left our call for the first hike to be in June, although noting that the risks of it being later had gone up.”

“In a recent speech, the Fed Chair emphasised the importance of labour market indicators in the decision about when to start lifting rates. She also noted, in the context of the likely pace of rate increases, that the Fed will proceed slowly due to asymmetries in the effectiveness of policy when rates are close to zero (i.e. their ability to counter negative shocks to the economy is limited).”

“Given this, with the softness in data now showing up in some labour market indicators, the Fed will probably want to see at least several months of much more solid data before starting to raise rates.”

“While not totally out of the question, this makes a June rate hike much less likely, and so we have changed our call for when the Fed will start raising rates to September.”