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.
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.
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.
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).