FOMC Minutes Preview: Rate hike this year likely to be the key message – DB

FXStreet (Barcelona) - Economists at Deutsche Bank, preview the FOMC Minutes, highlighting the key messages to be expected from the Fed in terms of rate hike guidance, and further view September to be the likely timing for a hike.

Key Quotes

“The April statement acknowledged the deterioration in Q1 economic activity; recent data have since displayed further weakness. Expect the minutes to highlight the Q1 weakness but underscore policymakers’ view that the most recent soft patch is temporary, due to inclement weather, the West Coast port slowdown and the collapse in energy-related capital spending. They may also mention the potential for seasonal distortion to Q1 output growth, which the San Francisco Fed recently estimated would have been closer to 1.8% upon further seasonal adjustments.”

“Given the fact that jobless claims have continued to trend downward and are now near a 15-year low, we suspect that most Fed officials remain cautiously optimistic.”

“In turn, the minutes are likely to reinforce the Fed’s official line that all meetings are “in play”, although we doubt this is the case in reality.”

“We find it hard to believe that the Fed’s first hike in interest rates in what will be nine years would be announced at a non-press conference gathering (July 31 & October 28). Moreover, we doubt the Fed can hike in December because financial markets are notoriously illiquid. The ongoing structural shift in bank balance sheets has only further fostered illiquidity concerns. For this reason, September 17 is the most likely meeting for a rate hike this year—June is out of play.”

“In any event, the key message from the April minutes should be that a rate hike is still very possible this year.”