FOMC to hold fire in March/April, but not thereafter - Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 15, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at Westpac, suggests that the appreciation of the USD over the past two years has been substantial and persistent and its most significant impact has been on the manufacturing sector, magnifying the impact of weak global growth.

    Key Quotes

    “However, increasingly the impact of the USD is being felt by the services sector, where orders and activity have both decelerated.

    Although the ISM non-manufacturing survey has registered a subsequent reduction in employment demand, the payrolls data tells a different picture, with private services driving total employment growth.

    As at February, both employment measures pointed to annual employment growth of around 1.9%, well in excess of the 1.2% rise in the labour force. Consequently, the unemployment rate remains under pressure. Wages are increasingly becoming the focus now that ‘full employment’ has seemingly been attained, with stronger growth the logical expectation.

    On the inflation front, while headline inflation can only be described as weak, core inflation has trended much closer to target, with annual growth on a PCE basis at 1.7% and, for the CPI, at 2.2% in January. While a rise to materially above the inflation target is not expected, core inflation pressures are robust enough to see the annual pace remain close to the 2.0% medium-term target. Headline inflation will revert in time.

    For the FOMC then, on the basis of employment and inflation, there is justification to continue the normalisation process in 2016. Of course it is clear that they remain cautious over the potential implications of global developments on the US economy. This will see them hold fire in March/April, but not thereafter (unless risks crystalize).”
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