Fed Chair Yellen to justify more gradual rate hike profile – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the market attention will shift temporarily today away from the EU referendum when Fed Chair Yellen makes her semi-annual testimony before the Senate Banking Panel.

Key Quotes

“The testimony represents a downside risk for the US dollar as Fed Chair Yellen is likely to display a dovish tone to justify the Fed’s recent decision to materially slow the pace of rate hikes planned for the upcoming years. The Fed has signalled that it plans to raise rates more gradually by one or two times this year, and three next year. In the event of Brexit, the Fed would have to further delay further monetary tightening likely ruling out any further rate hikes this year.

In order to justify the materially lower rate profile over their forecast profile, it is likely that Fed Chair Yellen will emphasise that productivity and labour force growth both remain disappointingly weak. Fed Chair Yellen is likely to remain cautiously optimistic that economic growth in the US is picking up and still on track to expand moderately this year although highlighting that it is subject to downside risks.”