Monday, May 16, 2016

Duy: Fed Considers June still possible for Rate Hike

by Bill McBride on 5/16/2016 01:14:00 PM

From economist Tim Duy: Fed Not As Convinced About June As Markets

Market participants place less than 10 percent chance of a rate hike in June. In contrast, San Francisco Federal Reserve President John Williams continues hold out hope for a third.
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I think the Fed increasingly believes the data is lining up in their favor. Friday's retail sales report likely went a long-way toward dispelling any lingering concerns they might have over the strength of the consumer. The tenor of that data has picked up markedly in the last few months.
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Remember that if we assume July and October are off the table (lack of press conferences and/or proximity to election), then retaining the option to hike three times requires a hard look at June. I think that will lead to a much more extensive discussion of a rate hike at the June meeting than many market participants appear to expect.
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Bottom Line: I don't think the data lines up to support a June rate hike. But I don't think the case will be as clear-cut as signaled by the low odds financial market participants place on a hike.
CR Note: Most analysts have moved to the September meeting as the next most likely for the next rate hike. To hike in June, I think the FOMC would need to see a pickup in key inflation measures,  especially core PCE inflation in April (to be released May 31st).