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FOMC Preview: We expect a dovish FED - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 25, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Analysts from Danske Bank explain that on Wednesday, the Federal Reserve will leave rates unchanged and the focus is likely to be on the statement.

    Key Quotes:

    “We expect the Fed to be dovish by communicating implicitly that it will skip March and remain patient in the current environment. The main reasons are the weak US data, depressed markets and subdued core inflation.”

    “Our current view is that the Fed will increase the Fed funds target rate three times this year (April, September and December) but the downside risks to this call have definitely increased. The Fed will not risk tightening too much, too quickly, in our view."

    “Markets have priced in one full hike this year and one next year.”

    “Since the December meeting, there have only been a few Fed speeches. Most notable was the speech by James Bullard (voter, hawk) in which he expressed his concerns about the falling inflation expectations. Although the turmoil has continued, his comments gave some relief to the markets on that day, suggesting that markets also worry that the Fed might tighten too much too quickly, especially since US data has disappointed recently.

    “Although we expect the FOMC to communicate that it is unlikely that the target rate will be increased in March, our main scenario is still that the financial stress will ease and data rebound, which will keep April in play.”

    While two months seem too short, three months could, in our view, still prove sufficient for the Fed to raise rates again. Hence, markets may be too pessimistic on the US and still underestimate the number of hikes this year. However, as mentioned previously, the downside risks have definitely increased and it could be that the next hike is indeed pushed further out in line with market expectations.”
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