The FOMC meeting of 17 December may mark another step towards the normalisation of monetary policy, and send a further signal that the interest rate lift-off is now only a matter of months away…..<\/p>\n
<\/p>\n
Intesa Sanpaolo \u2013 Research Department – For professional investors and advisers only<\/strong><\/p>\n The crucial elements of the meeting should be:<\/p>\n 1) a further improvement in the assessment of the macroeconomic scenario, with a likely positive revision of 2014 and 2015 projections (inflation and unemployment rate down, growth up);<\/p>\n 2) change in guidance (\u201cconsiderable time\u201d wording abandoned), mitigated by reassuring elements on the timing of the first hike (\u201cpatience\u201d) and on the expected interest rate path.<\/p>\n 1) Macroeconomic picture<\/strong> \u2013 The assessment of the macroeconomic picture at the forthcoming meeting will be especially important. Moderate expansion of economic activity is expected to be acknowledged yet again, together with a further improvement in labour market conditions. Inflation should be confirmed below target, and \u201cin the near term will likely be held down by lower energy prices and other factors\u201d, although no particular concern should be expressed over the likely transitory downtrend of the price trend in the months ahead.<\/p>\n Fischer said that the drop in oil prices is having expansive effects on growth and transitory compressive effects on inflation. Given its nature as a positive supply shock, oil price driven disinflation is not worrysome per se, unless it ultimately triggers a marked decline in long-term inflation expectations. For the time being, surveys are not indicating movements of any particular concern on this front. Until October, the assessment was that risks to the scenario were \u201calmost balanced\u201d. It seems likely that if guidance is changed (see below), the assessment of risks could remain \u201calmost balanced\u201d, also in light of the persistent weakness of global economic growth.<\/p>\n 2) Guidance<\/strong> \u2013 The debate over guidance continues. The strong economic data recorded across the board in recent months draw the picture of a \u201cnormalised\u201d economy, and the FOMC may be ready to remove the \u201cconsiderable time\u201d wording from its statement, switching to an entirely data-dependent formulation of guidance, albeit anchored with cautious indications on the timing of lift-off. Recent statements made by Fischer and Dudley, as also the precedent of the 2004 reversal, suggest that removal of the \u201cconsiderable time\u201d sentence may be mitigated by a call for \u201cpatience\u201d in managing the policy change. In 2004, in the run-up to the first interest rate hike, the sequence of changes in guidance was as follows: 1) January 2004 \u2013 removal of reference to stable rates for a \u201cconsiderable period\u201d and signal that the Fed would be \u201cpatient\u201d before raising rates; 2) May 2004 \u2013 removal of the word \u201cpatience\u201d; 3) June 2004 \u2013 interest rate increase. Dudley recently said that the \u201cconsiderable time\u201d sentence could be replaced by a call for \u201cpatience\u201d ahead of the reversal. The timing of the first fed funds increase remains uncertain, although some influent regional Fed presidents (Dudley, Williams) have repeated recently that a first hike in mid-2015 seems \u201creasonable\u201d.<\/p>\n An estimate yielded by the optimal control model used in the past by Yellen shows that fed funds rate should already be at 30bps at the end of 2014. FOMC projections of the interest rate path could become more concentrated on the 2016 horizon and reduce the current wide dispersion, prompting many \u201cdoves\u201d to take positions more in line with \u201ccentrists\u201d, without significantly changing the expected path (in any case still well above the market expectations implied by fed fund futures).<\/p>\n The FOMC is approaching the rate lift-off in a situation of potential conflict between its mandates:<\/strong> by mid-2015, the economy will be close to full employment, whereas inflation will have further strayed (albeit only temporarily) from the 2% goal, and could even be for a short time below 0 in Q12015. In this situation, the Fed will take a \u201cbalanced approach\u201d: should wage growth accelerate, inflation could take the back seat in the Fed\u2019s reaction function. We confirm our forecast for an initial hike in mid-2015, followed by gradual increases throughout 2015-16. In our view, the market is still too cautious on the expected path of interest rates. Volatility is set to increase in 2015.<\/p>\n Quelle: BONDWorld.ch<\/p>\n","protected":false},"excerpt":{"rendered":" The FOMC meeting of 17 December may mark another step towards the normalisation of monetary policy, and send a further signal that the interest rate lift-off is now only a matter of months away…..<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1503","post","type-post","status-publish","format-standard","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1503","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1503"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1503\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1503"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1503"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1503"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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