US: Divisions grow – ING
|The minutes to the July FOMC meeting suggest growing splits within the Federal Reserve on the likely policy path, according to James Knightley, Chief International Economist at ING.
Key Quotes
“Some worry about low inflation and think they can be patient. Others think it will resurface and it could do so at any point. We think the latter's argument will probably win out come December.”
“There appears to be growing disagreement within the Federal Reserve over how quickly monetary policy should be tightened. There is a group who suggest that with inflation continuing to undershoot the 2% target they have time on their side and there is no need for another rate hike anytime soon. For others the tight jobs market and expectations that it will continue to tighten mean that there is likely to be a more pressing need for action to prevent inflation potentially overshooting.”
“There was also disagreement over the balance sheet reduction plan. While FOMC members agreed it should begin “relatively soon” and there were several who were “prepared to announce a start date”, it was clear that “most preferred to defer that decision until an upcoming meeting”. Once again, these more dovish members felt they had time on their side and could wait for stronger figures before announcing action.”
“We still expect the Fed to confirm the plan in September, announcing an October start date. We also continue to expect a December Fed rate hike. GDP looks set to expand by around 3% in 3Q17, supported by consumer spending and an inventory rebuild. At the same time employment is likely to continue growing and we expect to see further evidence of an uptick in wages. With the dollar down 10% since the start of the year, which should contribute to rising import prices, we think that CPI will grind higher and be back above 2% by year end, giving the Fed the evidence it needs to justify ongoing gradual policy tightening.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.