Markets expecting a January 2016 Fed rate lift-off – KBC

FXStreet (Barcelona) - The KBC Bank Research Desk, comments that the FOMC statement signals that the Fed is optimistic on growth but uncertain about inflation, and further adds that markets are expecting a rate hike by the Fed in January 2016, with risks tilted towards a November/December lift-off too.

Key Quotes

“We read the statement as more positive on growth and somewhat more concerned about the inflation outlook with some reservations on the possible negative impact from developments abroad. Treasuries were affected by the inflation/international concerns.”

“The FOMC was clearly more optimistic on growth. Economic activity is now expanding at a solid pace (previously moderate), while job growth was considered strong (previously solid). No changes on household spending (rising moderately), but the Fed added that lower oil prices are boosting purchases.”

“On policy, the FOMC still judges it can remain patient in beginning to normalize its monetary stance. That means no rate increases at the next two meetings (March/April). The FOMC will also take international developments into consideration (new)”

“Our take remains that the FOMC is gradually moving towards a lift-off in June, but is data-dependent and thus remains open to change this time frame on the basis of negative inflation developments or a renewed slowing of the economy.”

“The market counts on January 2016 for the lift-off (fully discounted), but with some chances for a move in Nov/Dec.”

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