Fed: Lack of compelling data likely to result in steady rates this week - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that a lack of FOMC consensus and a lack of compelling data likely to result in Fed keeping its rates steady this week.

Key Quotes

“The statement should have a slight hawkish twist though. Conditions are unlikely to be downgraded despite softer Aug jobs and PMIs with Q3 GDP tracking 3%. The Fed may reinsert a “balanced risks” assessment too. The dot plot profile surely has a dovish lean though. The median for 2 hikes in 2016 likely falls to 1 and the median long run rate likely falls again, -25bp to 2.75%. That shouldn’t upset anyone - OIS shows a 52% chance for a Dec hike. Key risk: there’s a non-negligible chance 2 members (Brainard & Tarullo) leave their dots for 2016 at 0.375%, kickstarting a serious debate whether the Fed will go at all in 2016.

We favour a patch of USD weakness despite recent market wobbles. Subdued chain store/auto sales flag more mild Aug retail sales this week, while a steady Fed and yet more cuts to the dot plot rate projections likely trim the USD’s sails yet further next week.”