Tuesday, June 16, 2015

Duy: FOMC Preview

by Bill McBride on 6/16/2015 04:11:00 PM

Earlier FOMC Preview: No Rate Hike

From Tim Duy writing at Bloomberg: Janet Yellen's Prediction Last Month Is Already Being Vindicated. Excerpt:

Yellen’s press conference will be the highlight of the day. The Fed’s statement will likely be interpreted as dovish; be wary that Yellen is subsequently interpreted as hawkish as she will reaffirm the case for a rate hike later this year. She will repeat her conviction that policy needs to be forward looking and thus the time to begin normalizing draws near. But she will also reiterate that the path of policy is data dependent, and the current data and forecasts point to a very gradual increase in rates. Policymakers would like this message to shine through the noise; the more-tradable issue of the first rate hike, however, is likely to remain the dominant focus of market participants.

Bottom Line: The Fed will take a pass at this meeting and leave market participants debating over September or December as the timing of the first hike. Officals will leave September open, as there is plenty of time between now and then to confirm that the data weakness in the first part of the year was only transitory. Probably not enough time to see this between the June and July meetings. I don’t expect to see news to make me believe that the Fed expects anything but a long, gradual pace of policy normalization. From their perspective, the data have yet to justify anything else.