Fed: What is Needed to Secure Another Rate Hike? - ING
James Smith, Economist at ING, suggests that the key to the next FOMC rate hike now lies with a pick-up in US activity data.
Key Quotes
“Three conditions needed to secure another rate hike from the Fed. One
of these, namely an easing of financial conditions, has already been met
and another, signs of a pick-up in inflation, has some scope to
materialise in the short-term. Thus, assuming this remains the case, a
pick-up in activity data is now key in giving the more dovish FOMC
members the confidence to vote for another hike.
That said, the FOMC needs to be sure that the improvement in data can be
sustained. With only one set of CPI, labour market, durable goods and
retail sales data released before the next meeting in June, we feel that
it will be hard to make any firm conclusions. One additional
consideration is the UK referendum on EU membership, which whilst in
itself is unlikely to deter the Fed from hiking, could create some
market volatility around the next FOMC meeting (one week prior to the
vote).
With that in mind, we still think the probability of a June hike is
relatively low. But if the data shows a sustained improvement as we head
into the summer, and financial conditions are stable, then we think the
Fed will feel comfortable with a third quarter hike.”
