Back
11 Dec 2015
FOMC Preview: Looking past the first rate hike – Societe Generale
FXStreet (Mumbai) - Analysts at Societe General in their preview on the next week’s FOMC meeting, highlighted two main points - how will the Fed communicate the liftoff and what is their outlook for the rest of the tightening cycle.
Key Quotes:
“The outcome of the next week’s FOMC meeting has been well telegraphed and a rate hike is a near-certain outcome.”
“The Fed will also telegraph that subsequent hikes will be data dependent and likely very gradual. How will this be communicated?”
“All the "action’ will be in the third paragraph which describes the forward guidance on rates.”
“There are two key points that the FOMC will likely want to underscore in this paragraph. First, that the subsequent hikes will be data dependent, and this will continue to include not only economic but also financial variables.”
“Second, that based on its expectations for the above, the pace of hikes is likely to be gradual.”
“Chair Yellen has to strike a delicate balance between sounding constructive enough on the economy to justify the hike, and yet not sounding so constructive that the market extrapolates a steeper tightening path.”
“Given that the market is fully priced for December liftoff, and given the ECB disappointment last week, we do not see a strong impetus for signalling an even slower pace of hikes for next year. “
“That said, we see better odds that the median estimate of the longer-run fed funds rate is adjusted down from 3.5% to 3.25%, possibly also pulling down the 2017 and 2018 forecasts.”
Key Quotes:
“The outcome of the next week’s FOMC meeting has been well telegraphed and a rate hike is a near-certain outcome.”
“The Fed will also telegraph that subsequent hikes will be data dependent and likely very gradual. How will this be communicated?”
“All the "action’ will be in the third paragraph which describes the forward guidance on rates.”
“There are two key points that the FOMC will likely want to underscore in this paragraph. First, that the subsequent hikes will be data dependent, and this will continue to include not only economic but also financial variables.”
“Second, that based on its expectations for the above, the pace of hikes is likely to be gradual.”
“Chair Yellen has to strike a delicate balance between sounding constructive enough on the economy to justify the hike, and yet not sounding so constructive that the market extrapolates a steeper tightening path.”
“Given that the market is fully priced for December liftoff, and given the ECB disappointment last week, we do not see a strong impetus for signalling an even slower pace of hikes for next year. “
“That said, we see better odds that the median estimate of the longer-run fed funds rate is adjusted down from 3.5% to 3.25%, possibly also pulling down the 2017 and 2018 forecasts.”