Back
14 Jan 2015
Disinflation concerns suggest Fed’s rate hike cycle might be delayed – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, shares that US money market has started to adjust to the prospect that disinflation could delay the start of the Federal Reserve’s rate hike cycle, and further adds that Fed is unlikely to hike rates until the end of 2015.
Key Quotes
“The halving in UK CPI inflation in December to just 0.5% y/y drove home the message that disinflationary pressures are having a significant impact even on economies that have been posting healthy growth rates. Even before the release of the weak UK December CPI data yesterday the market had driven out expectations for the first BoE rate hike into 2016.”
“The US money market has now started to adjust to the prospect that disinflation could delay the start of the Federal Reserve’s rate hike cycle.”
“Against the backdrop of plummeting oil prices, futures are not now fully priced for a 25 bps hike in the Fed funds rate until September 2015. In our view, the Fed is unlikely to start hiking rates until the end of this year.”
“Although soft fuel prices will weigh on US inflation indices, it will also act as a tax cut for consumers. To some degree this should offset some of the disinflationary impact of the fall in oil prices.”
“However, weak price pressures are not confined to the energy sector. On the back of good weather and strong harvests in 2014, food prices are also depressed. Perhaps of more significance is last week’s December’s payrolls release which brought news of a surprisingly soft -0.2% m/m (1.7% y/y) reading for average hourly earnings.”
“This afternoon, attention will move back to US economic data releases. US retail sales are expected to decline -0.1% m/m following a strong November showing.”
“Later in the week both US December PPI and CPI inflation indices are scheduled for release. Even when the volatile food and energy sectors are stripped out, underlying CPI inflation is expected to hold at 1.7% y/y suggestive of moderate price pressures.”
Key Quotes
“The halving in UK CPI inflation in December to just 0.5% y/y drove home the message that disinflationary pressures are having a significant impact even on economies that have been posting healthy growth rates. Even before the release of the weak UK December CPI data yesterday the market had driven out expectations for the first BoE rate hike into 2016.”
“The US money market has now started to adjust to the prospect that disinflation could delay the start of the Federal Reserve’s rate hike cycle.”
“Against the backdrop of plummeting oil prices, futures are not now fully priced for a 25 bps hike in the Fed funds rate until September 2015. In our view, the Fed is unlikely to start hiking rates until the end of this year.”
“Although soft fuel prices will weigh on US inflation indices, it will also act as a tax cut for consumers. To some degree this should offset some of the disinflationary impact of the fall in oil prices.”
“However, weak price pressures are not confined to the energy sector. On the back of good weather and strong harvests in 2014, food prices are also depressed. Perhaps of more significance is last week’s December’s payrolls release which brought news of a surprisingly soft -0.2% m/m (1.7% y/y) reading for average hourly earnings.”
“This afternoon, attention will move back to US economic data releases. US retail sales are expected to decline -0.1% m/m following a strong November showing.”
“Later in the week both US December PPI and CPI inflation indices are scheduled for release. Even when the volatile food and energy sectors are stripped out, underlying CPI inflation is expected to hold at 1.7% y/y suggestive of moderate price pressures.”