Fed will not hike this year – Danske Bank

Research Team at Danske Bank, lists down the various reasons because of which they think that the US Fed won’t hike rates this year.

Key Quotes

• “GDP growth has slowed markedly to just around 1% q/q AR over the past three quarters –annual GDP growth declined from 3.3% y/y in Q1 15 to 1.2% y/y in Q2 16.

• Unemployment and underemployment rates have moved sideways for some time.

• Wage growth has picked up but is still subdued.

• PCE core inflation has moved sideways this year –it has only been at, or above, target for five months since 2008.

• Inflation expectations (both market-based and survey-based) have moved lower.

• ISM is the weakest it has been since 2010 and is in easing, not hiking, territory.

• Weak business investments as non-residential investments have declined for three consecutive quarters.

• The Fed has already tightened monetary policy equivalent to 330bp due to QE tapering and hiking expectations.

• Most voting FOMC members have a dovish-to-neutral stance on monetary policy, in our view.

• Do not always believe in Fed guidance, even if the Fed seems eager to hike.”