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25 Jan 2016
FOMC: Not a live meeting - BBH
FXStreet (Delhi) – Research Team at BBH, suggests that this is not a live meeting for the Federal Reserve in the sense that no change in policy can be reasonably expected.
Key Quotes
“Whatever the Fed means by gradual, it does not mean a rate hike at consecutive meetings. On top of that recent developments can only renew the concerns expressed last September when the Fed opted not to hike rates.
Since the FOMC met last month, it has become more evident that the US economy nearly stagnated in Q4. When the Fed met last month, the Atlanta Fed GDPNowcast suggested the economy was tracking around 2.0% annualized growth in Q4, which is about what is regarded as trend. The Atlanta Fed's model now says around 0.7% annualized. The FOMC will not have Q4 GDP in hand when it meets. It will be reported at the end of the week, but they will know as investors do, that it was poor.
In addition, market-based measures of inflation expectations (such as the difference between the yields of conventional and inflation-protected bonds) continue to fall. The 10-year break-even fell to its lowest level since 2009, some 30 bp lower than where it finished last year. The University of Michigan will update its survey of inflation expectations. The one-year fell to 2.4%, its lowest in since September 2010 in the preliminary reading. However, the longer-term (5-10 years) expectations have firmed since 2.5% seen in October. And at 2.7%, it matches the 12- and 24-month averages.
The Federal Reserve may draw some comfort from the only employment report since last month's meeting. The nearly 300k net increase in nonfarm payrolls was the second best of the year. Fed officials will likely recognize, as many private sector economists do, that such job growth will be difficult to sustain as full employment has been approached.”
Key Quotes
“Whatever the Fed means by gradual, it does not mean a rate hike at consecutive meetings. On top of that recent developments can only renew the concerns expressed last September when the Fed opted not to hike rates.
Since the FOMC met last month, it has become more evident that the US economy nearly stagnated in Q4. When the Fed met last month, the Atlanta Fed GDPNowcast suggested the economy was tracking around 2.0% annualized growth in Q4, which is about what is regarded as trend. The Atlanta Fed's model now says around 0.7% annualized. The FOMC will not have Q4 GDP in hand when it meets. It will be reported at the end of the week, but they will know as investors do, that it was poor.
In addition, market-based measures of inflation expectations (such as the difference between the yields of conventional and inflation-protected bonds) continue to fall. The 10-year break-even fell to its lowest level since 2009, some 30 bp lower than where it finished last year. The University of Michigan will update its survey of inflation expectations. The one-year fell to 2.4%, its lowest in since September 2010 in the preliminary reading. However, the longer-term (5-10 years) expectations have firmed since 2.5% seen in October. And at 2.7%, it matches the 12- and 24-month averages.
The Federal Reserve may draw some comfort from the only employment report since last month's meeting. The nearly 300k net increase in nonfarm payrolls was the second best of the year. Fed officials will likely recognize, as many private sector economists do, that such job growth will be difficult to sustain as full employment has been approached.”