- The run of positive economic news in recent weeks has coincided with generally dovish comments from Fed offcials. Policymakers have indicated that they are not âbehind the curveâ, and have expressed increased uncertainty about the neutral level of interest rates. We would treat recent comments with caution, however, as we have not heard formal remarks from the Fed''s leadership.
- Taken together, we see recent economic data and the public comments from Fed ofï¬cials as consistent with only modest changes to the FOMC statement. We think the committee will upgrade its discussion of the labour market and measures of inï¬ation expectations, but change little else. The period between the July and September meetings will include a number of important data releases as well as the annual Jackson Hole conference. Therefore, policymakers will have an incentive to keep their options open, and plenty of opportunities to guide market expectations, should they need to.
- We continue to see a 25% chance that the committee will raise the funds rate in September and a 40% chance that it will do so in December - implying a roughly two thirds probability of at least one rate increase this year.
RaboBank on July FOMC Decision:
-While the Fed is in a wait-and-see mode to assess the threats to the global outlook and the strength of domestic momentum, recent US data have boosted the Fed;s confidence. We expect the Fed to squeeze in one rate hike before the end of the year, most likely in December.