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22 Apr 2016
FOMC Preview: On hold in April; two hikes in 2016 - Rabobank
According to analysts from Rabobank the Federal Reserve will leave rates unchanged next week but they continue to see two rates hikes during 2016, most likely in June and December.
Key Quotes:
“The next FOMC meeting takes place on April 26 and 27. We only have the formal statement to look forward to, because there will be no update of the Committee’s economic and rate projections nor a press conference by Chair Janet Yellen.”
“In recent weeks, data for the US economy have been disappointing. In fact, the Atlanta Fed’s nowcast (‘GDPNow’) for Q1 GDP growth stood at 0.3% on April 19. The New York Fed’s nowcast (April 15) for Q1 stands only slightly higher – note that we are talking about annualized growth figures –, at 0.8%. This would be a substantial slowdown from the 1.4% growth rate in Q4, although it should be mentioned that the initial estimate by the BEA was 0.7%.”
“The apparent slowdown in GDP growth makes an April rate hike by the Fed even less likely than it already was. The minutes of the March meeting revealed that the possibility of an April hike was discussed already. Several (i.e. doves) expressed the view that a cautious approach would be prudent and that a hike as soon as April would signal a sense of urgency they did not think appropriate. In contrast, some other participants (i.e. hawks) indicated that a hike in April might well be warranted if the incoming economic data remained consistent with their expectations.”
“However, recently hawks and centrists have been less vocal about an April hike. The usually hawkish James Bullard (St. Louis Fed, a voter in the FOMC this year) has become more cautious and now ‘does not want to prejudge’ whether the Committee should act this month. Dennis Lockhart (Atlanta Fed) – a non-voter in the FOMC this year – has changed his mind in recent weeks and he will no longer push for a rate increase in April.”
“We expect the Fed to remain on hold this month, but we stick to our call of two hikes this year, most likely one in June and another in December. However, if the slowdown continues well into Q2 this could delay the first hike of this year to September.”
Key Quotes:
“The next FOMC meeting takes place on April 26 and 27. We only have the formal statement to look forward to, because there will be no update of the Committee’s economic and rate projections nor a press conference by Chair Janet Yellen.”
“In recent weeks, data for the US economy have been disappointing. In fact, the Atlanta Fed’s nowcast (‘GDPNow’) for Q1 GDP growth stood at 0.3% on April 19. The New York Fed’s nowcast (April 15) for Q1 stands only slightly higher – note that we are talking about annualized growth figures –, at 0.8%. This would be a substantial slowdown from the 1.4% growth rate in Q4, although it should be mentioned that the initial estimate by the BEA was 0.7%.”
“The apparent slowdown in GDP growth makes an April rate hike by the Fed even less likely than it already was. The minutes of the March meeting revealed that the possibility of an April hike was discussed already. Several (i.e. doves) expressed the view that a cautious approach would be prudent and that a hike as soon as April would signal a sense of urgency they did not think appropriate. In contrast, some other participants (i.e. hawks) indicated that a hike in April might well be warranted if the incoming economic data remained consistent with their expectations.”
“However, recently hawks and centrists have been less vocal about an April hike. The usually hawkish James Bullard (St. Louis Fed, a voter in the FOMC this year) has become more cautious and now ‘does not want to prejudge’ whether the Committee should act this month. Dennis Lockhart (Atlanta Fed) – a non-voter in the FOMC this year – has changed his mind in recent weeks and he will no longer push for a rate increase in April.”
“We expect the Fed to remain on hold this month, but we stick to our call of two hikes this year, most likely one in June and another in December. However, if the slowdown continues well into Q2 this could delay the first hike of this year to September.”