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10 Dec 2014
Fed rate hike timing in focus - BOML
FXStreet (Barcelona) - Brian Smedley, Rates Strategist at Bank of America-Merrill Lynch, notes that the strong US employment report has put the focus on the timing of Fed’s first rate hike, and anticipates the Fed to hike rates in September.
Key Quotes
“The strong US employment report brought the timing of the first Fed rate hike into focus, with markets now pricing in a high probability of hike at the June 2015 meeting, just six months away.”
“We expect a later liftoff in September, mainly due to low inflation and falling inflation expectations. In preparation for the end of a zero interest-rate policy (ZIRP), the Fed has recently expanded the tests of its two key draining tools, the reverse repurchase (RRP) facility and the term deposit facility (TDF).”
“At this point, we believe the Fed’s exit toolkit is not ready for primetime, and testing it will take time, which is another reason to expect a patient approach to liftoff. Between now and the first hike, we think the Fed staff will be busy expanding and testing their tools, and potentially developing new ones, to ensure that they are ready for a successful launch.“
Key Quotes
“The strong US employment report brought the timing of the first Fed rate hike into focus, with markets now pricing in a high probability of hike at the June 2015 meeting, just six months away.”
“We expect a later liftoff in September, mainly due to low inflation and falling inflation expectations. In preparation for the end of a zero interest-rate policy (ZIRP), the Fed has recently expanded the tests of its two key draining tools, the reverse repurchase (RRP) facility and the term deposit facility (TDF).”
“At this point, we believe the Fed’s exit toolkit is not ready for primetime, and testing it will take time, which is another reason to expect a patient approach to liftoff. Between now and the first hike, we think the Fed staff will be busy expanding and testing their tools, and potentially developing new ones, to ensure that they are ready for a successful launch.“