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Sunday, May 08, 2016

Merrill on Fed: "See you in September"

by Calculated Risk on 5/08/2016 09:28:00 AM

A few excerpts from a research piece by Michael Hanson at Merrill Lynch: See you in September

Earlier this year we had expected that the Fed would shift away from risk management toward a more straight-forward data-dependent policy stance, and that the US macro data would improve enough to support a rate hike this summer. Following the soft April jobs report we have reassessed both parts of that view. Despite some Fed officials making the case for a “live” June FOMC meeting, we have been struck since early this year by Fed Chair Yellen’s strongly dovish tone. ... Thus we now expect the Fed will hike one more time this year, in September. This very gradual hiking pace continues in our view with two hikes for 2017, in March and September.

Notably, we still see a greater chance for a hike at the June or July meeting than current market pricing. ... We don’t think the threshold for another 25bp hike is nearly as high as market pricing implies, but the Fed does need to see signs that continued progress is being made toward its dual mandate objectives. ... While September is now most likely in our view, the probability distribution for the timing of hikes remains fairly flat overall.
emphasis added
CR Note: I think a June rate hike is still possible, and that the main focus will be on inflation - not employment.