Back
18 Jan 2016
Fed sticks to the script - ANZ
FXStreet (Bali) - As the ANZ FX Strategy Team notes, during last Friday, both FOMC Vice Chair Dudley and San Francisco Fed President Williams downplayed the impact of recent ructions on the US economy.
Key Quotes
Despite US equities posting their worst two week start to the year on record and WTI oil prices falling below USD30/bbl, FOMC Vice Chair Dudley and San Francisco Fed President Williams downplayed the impact of recent ructions on the US economy.
Williams noted that the US economy had nearly fully recovered and was in good shape. Dudley did admit recent data had come in “on the softer side”, but that there is sufficient economic strength to push the unemployment rate down further and for the economy to expand this year at a pace slightly above the long-term trend.
As such, increases in US rates will still be gradual and data dependent, with the focus on the interest rate path rather than the exact timing of moves. The expectation of above-trend US economic growth was expected to be sufficient to push both inflation and inflation expectations higher over time, while core inflation appeared stable, with Williams of the view that the forces contributing to low US inflation are mostly transitory.
Dudley largely shared this view, but also reiterated earlier concerns over the impact of low energy prices and headline inflation on inflation expectations, particularly were the US economy to weaken.
Further falls in oil prices since these recent Fed comments only serve to highlight the risks to the US inflation outlook and long-term interest rates, which matters hugely in the global economy.
Key Quotes
Despite US equities posting their worst two week start to the year on record and WTI oil prices falling below USD30/bbl, FOMC Vice Chair Dudley and San Francisco Fed President Williams downplayed the impact of recent ructions on the US economy.
Williams noted that the US economy had nearly fully recovered and was in good shape. Dudley did admit recent data had come in “on the softer side”, but that there is sufficient economic strength to push the unemployment rate down further and for the economy to expand this year at a pace slightly above the long-term trend.
As such, increases in US rates will still be gradual and data dependent, with the focus on the interest rate path rather than the exact timing of moves. The expectation of above-trend US economic growth was expected to be sufficient to push both inflation and inflation expectations higher over time, while core inflation appeared stable, with Williams of the view that the forces contributing to low US inflation are mostly transitory.
Dudley largely shared this view, but also reiterated earlier concerns over the impact of low energy prices and headline inflation on inflation expectations, particularly were the US economy to weaken.
Further falls in oil prices since these recent Fed comments only serve to highlight the risks to the US inflation outlook and long-term interest rates, which matters hugely in the global economy.