US: Fed into the fog – Rabobank

By FXStreet Research Team at Rabobank, suggests that despite this optimism, the uncertainty about the state of the global economy and its impact on the US economy are likely to delay the Fed’s next rate hike at least until June.

Key Quotes

“If the services sector continues to grow and is not dragged down by the contraction in the manufacturing and mining sectors, we expect the Fed to continue its hiking path. In this light, the recent decline in Markit’s flash services PMI to 49.8 is obviously bad news, but further confirmation from other surveys, such as the non-manufacturing ISM, is needed.

In her testimony to Congress, Fed Chair Janet Yellen did not appear to be intimidated by the turmoil in financial markets and the economic developments abroad. In fact, the continued reduction in labour market slack is boosting the Fed’s confidence that core inflation will be supported by wages going forward.

However, for now wage growth remains muted because of the elevated amount of discouraged workers and involuntary part-time workers. What’s more, the global headwinds are likely to delay the return of headline inflation to its 2% target. Therefore, we do not expect the Fed to deliver the four hikes that were implied …read more

Source:: FX Street