US GDP Q4: One reason for the Fed to remain on hold - Danske

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 29, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - According to analysts from Danske Bank, the slower growth that took place in the US economy during the fourth quarter is another reason for the Federal Reserve to leave rates unchanged in March. They still expect a rate hike in April.

    Key Quotes:

    “We expect the US to continue to grow at a moderate pace this year. However, since oil investments will probably continue to drag down growth for some time and the manufacturing sector is still struggling, it depends almost solely on US consumers."

    “The first estimate confirmed that the Fed increased the Federal funds rate at the same time as the economy slowed, which the FOMC statement from the meeting held earlier this week also recognised. However, the labour market is key to understanding why the Fed made the initial lift-off as the labour market is more or less back to ‘normal’ as the Fed lives in a Phillips curve world. This said, slower GDP growth in Q4, weak manufacturing data, subdued core inflation low market inflation expectations and financial market turmoil explain why the Fed was relatively dovish in the latest FOMC statement. “

    “While today’s release supports our view that the Fed will stay on hold in March, our main scenario is still that it will hike for the second time in April, although there are downside risks to this call, as, in our view, the Fed will not risk tightening too much, too quickly. Our expectation is based on our main scenario, which is that financial stress will ease and data will rebound.”

    Focus is now on the January jobs report due next Friday, as the strong development in the labour market is one of the few bright spots left in the Fed’s ‘chart book’. If we see a strong report, it is likely to confirm that the economy continues to grow at a moderate pace. However, if the report is weak, it could be a game changer for the Fed and could also weigh significantly on market sentiment, as some of the market anxiety is due to US growth concerns.”
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