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Barclays: Fed still expected to hike rated by mid-2015 - eFXnews

FXStreet (Łódź) - The eFXnews team point out that in the opinion of Barclays recent Fed heads' comments reinforce expectations that the first rate hike will come in mid-2015.

Key quotes

"The highlight of the week was the release of the September FOMC meeting minutes, which were perceived as very dovish, much more so than appropriate, says Barclays Capital."

"'The market reacted to their mention of worries about the strengthening of the USD and weak growth prospects globally. However, only 'some' participants mentioned this risk and only a 'couple' were worried about the disinflationary effects. Importantly, the bulk of the USD appreciation had already taken place prior to the Fed meeting in September and was presumably factored into the Fed’s updated economic forecasts,' Barclays notes."

"'In September, the Fed marked down its growth forecasts for 2015-16 very slightly, while actually lowering its unemployment rate forecasts. Fed Chair Yellen did not highlight concerns about the USD at the press conference, and earlier this week, New York Fed President Dudley noted that even with the current backdrop and risk assets starting to underperform, it was reasonable to expect the hiking cycle to start in mid-2015. Fed Vice Chair Fischer also noted that the exchange rate was one of the factors and expectations of hiking by mid-2015 seem right,' Barclays adds."

"'In our view, it will take a far sharper drop in risk assets to cause the Fed to deviate from a mid-2015 baseline for the start of the hiking cycle. Overall, in the context of a strong payroll report, where labor market slack fell faster than expected, domestic developments should dominate spill-over effects from overseas; financial conditions also remain easy. Hence, we believe the market has overreacted to the minutes and current yield levels are no longer consistent with the policy outlook,' Barclays argues."

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