Fed’s first rate hike likely in Q4 – Rabobank

FXStreet (Edinburgh) - Philip Marey, Senior US Strategist at Rabobank, sees the Fed starting its hiking cycle at some point in the last three months of 2015.

Key Quotes

“The Fed sees this deflation as transitory and even beneficial to household purchasing power”.

“Given the substantial progress in the labor market, the FOMC would like to end the near-zero interest rate policy”.

“On the other hand, raising the policy rate in a period of negative inflation readings may give the impression that the Fed does not take the price stability component of its dual mandate very seriously”.

“In fact, the FOMC is already monitoring the inflation expectations of consumers and financial markets closely. After all, if low inflation figures are going to drag down inflation expectations, this could have a negative impact on core inflation through the wage-price mechanism”.

“All’n all, the FOMC would like to see more evidence that inflation is going to return to its 2% target before the first rate hike”.

“However, we think it may take some time before the data are going to convince the FOMC. It may take until the final quarter of the year before inflation returns to positive territory. Therefore, we continue to have our doubts about a June rate hike and we still think that Q4 is more plausible”.