Fed Statement Leaves Door Open, No Signal of Imminent June Hike - ING

Fed Statement Leaves Door Open, No Signal of Imminent June Hike - ING

Rob Carnell, Chief International Economist at ING explains that it is a relief that the Federal Reserve did not flag a potential June hike and affirmed that the commitment remains data dependent.

Key Quotes:

“The FOMC statement did not re-introduce the "balance of risks" text, and continues to monitor global and financial developments - the next rate hike will be determined by the run of the data.”

“With no rate hike remotely likely at this meeting, the only real possibility of any market moving event would have been the re-introduction of some text about the "balance of risks" - which was widely seen as the clue back in October that the Fed was getting ready to hike in December 2015. That did not happen this time.”

“The other possibility was dropping any reference to "global economic and financial conditions" (…) But instead the text now simply says that such conditions would be monitored closely. Hawks might latch onto this as relevant. In time it might be. But rather than opening the door to a June rate hike, the statement is really just keeping open a door that was in any case wide open.”

“So what does this mean for Fed policy? For one thing, it is a relief not to see the Fed flag a potential June hike that may turn out not to be warranted unless the activity data starts to turn up soon. That could have led to an embarrassing U-turn. Instead, the commitment to data dependent policy setting remains.”

“And if 2Q16 shapes up better than 1Q16 did, a June hike remains a possibility, though in our view, with a lower probability than a September (or even July at a pinch) hike. Markets were basically positioned for this before the meeting, and we do not anticipate much of a market reaction on the back of this statement.”