Fed unlikely to deliver a hawkish surprise - Westpac

Fed unlikely to deliver a hawkish surprise, a hike almost fully priced, jobs, inflation and wages all surprising on the downside lately and influential insiders such as Brainard musing that persistent low inflation could lead to reassessment of the Fed’s path, explains Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“Recent weaker data might prompt modest downward revisions to the ‘17 and ‘18 GDP median (2.1%) and the PCE median (1.9% & 2% respectively), though unemployment is below the Fed’s projections and the dots are “safe” (3 hikes in 2017 & 2018) - it would take an implausibly large number of participants to shift.”

“Even with a cautious ECB the USD index will struggle for sustained topside.  Growth and inflation trends do not warrant a hawkish Fed, Republican consensus on tax cuts and infrastructure is still lacking, Russia-gate adds another impediment to the Republicans’ agenda and a debt ceiling showdown appears to be on the horizon.”