FOMC keeps options open – BTMU

Derek Halpenny, European Head of GMR, assessed the potential scenario for the FOMC in the run up to the March meeting.

Key Quotes

“Philly Fed President Patrick Harker stated yesterday that he saw a rate hike at the March FOMC as a possibility given the direction the economy is moving in. A strong jobs report and healthy real GDP growth means a hike could be justified. Admittedly, Harker (a new FOMC voter this year) is now perhaps the most hawkish voter on the FOMC this year but his comments followed a similar message given by San Francisco Fed President Williams (non-voter) who on Friday made the argument that going sooner rather than later might be most prudent given the shifting balance of risks toward higher inflation”.

“The key speech of course will be Fed Chair Yellen’s semi-annual testimony to Congress on 14th February. The markets will be strongly skewed in favour of her not signalling a rate hike in March and while that makes sense, the markets may be surprised by a desire of Yellen to keep the FOMC’s options open. Predicting how politics in Congress plays out will be very difficult but continued strong jobs growth and then the emergence of a fiscal plan sooner than expected is something the FOMC would probably like to be prepared for”.