We fear the Fed is making a mistake - Danske Bank

According to analysts from Danske Bank, a “hawkish” Janet Yellen is ignoring inflation and weaker data.

Key Quotes: 

“We were obviously wrong about our non-consensus call that the Fed would skip hiking at this meeting. However, we are surprised that the Fed is not more worried about low inflation. We still fear the Fed is making a policy mistake, as economic data do not justify a hike, in our view.”

FOMC preview: Fed should wait before next rate hike - Danske Bank

“Unchanged dots but four FOMC members expect no further hikes this year – and we guess three of them are voting members. This puts a third hike this year into question.”

“Fed may hike again in December, as it targets unemployment but risks are skewed toward a pause in the hiking cycle, so we expect a maximum of 1-2 hikes next year if anything. More details on quantitative tightening (QT) may come already in September so actual QT can start in Q4.

“Fed plans to shrink the balance sheet by USD300bn the first year and USD600bn per year afterwards, which may be too optimistic in our view. There is a risk that a perfect storm will hit USD liquidity in H2 17.”