Research Team at Lloyds Bank, notes that the recent speeches by US policymakers indicate that they are becoming more cautious about the policy outlook.

Key Quotes

“The Fed raised interest rates in December for the first time in nearly a decade, but it appears to be rowing back on its previous so-called ‘dot plot’ forecast of four further rate increases this year. The contrast between December’s ‘dot plot’ and market expectations is particularly marked, as the latter are not pricing in the next rate rise until early 2017. In this context, Fed Chair Yellen’s testimony to Congress this week (Wed/Thu) will be a major opportunity to provide more clarity on whether a rise in rates at the next meeting in March is realistic and, more broadly, to what extent market expectations for no rate changes this year are justified.

We expect Ms. Yellen to sound cautious about the prospects for a March hike, without ruling it out entirely. This would be broadly in line with comments from Fed Vice Chair Stanley Fischer and New York Fed President Bill Dudley. In particular, Mr Dudley said that financial conditions are “considerably tighter” than at the time of the December meeting. Our own current view is for US rates to rise in June.”