Fed Statement Leaves Door Open, No Signal of Imminent June Hike - ING
Rob Carnell, Chief International Economist at ING explains that it is a
relief that the Federal Reserve did not flag a potential June hike and
affirmed that the commitment remains data dependent.
Key Quotes:
“The
FOMC statement did not re-introduce the "balance of risks" text, and
continues to monitor global and financial developments - the next rate
hike will be determined by the run of the data.”
“With no rate
hike remotely likely at this meeting, the only real possibility of any
market moving event would have been the re-introduction of some text
about the "balance of risks" - which was widely seen as the clue back in
October that the Fed was getting ready to hike in December 2015. That
did not happen this time.”
“The other possibility was dropping
any reference to "global economic and financial conditions" (…) But
instead the text now simply says that such conditions would be monitored
closely. Hawks might latch onto this as relevant. In time it might be.
But rather than opening the door to a June rate hike, the statement is
really just keeping open a door that was in any case wide open.”
“So
what does this mean for Fed policy? For one thing, it is a relief not
to see the Fed flag a potential June hike that may turn out not to be
warranted unless the activity data starts to turn up soon. That could
have led to an embarrassing U-turn. Instead, the commitment to data
dependent policy setting remains.”
“And if 2Q16 shapes up better
than 1Q16 did, a June hike remains a possibility, though in our view,
with a lower probability than a September (or even July at a pinch)
hike. Markets were basically positioned for this before the meeting, and
we do not anticipate much of a market reaction on the back of this
statement.”