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Fed to begin hikes in Q2 2015 a 60% probability - BNZ

FXStreet (Bali) - The Fed remains on course to begin rate hikes in Q2 2015, notes Bank of New Zealand, a scenario which the bank assigns a 60% probability.

Key Quotes

"US policymakers have already been on the wires, trying to alleviate the panic in markets. US Treasury Secretary Jack Lew declared that the US core economic growth path is “very strong”, while Dallas Fed President Richard Fisher noted that it is “way too premature” to be talking about another round of quantitative easing. (To us, the fact that the question was asked is simply another sign of investor hysteria)."

"Most curiously, just after the worst of the market meltdown, headlines broke that Fed Chair Janet Yellen was said to have expressed confidence in the US economic expansion, despite foreign risks. The news reports cited unnamed sources, who attended a meeting with Yellen on the fringes of IMF/World Bank meetings last weekend. The highly convenient timing of those headlines were met with deep suspicion, and prompted speculation the Fed itself wanted to reassure markets."

"Reasonable people can disagree on whether the Fed can stay the course and begin hiking rates in mid-2015. We would agree that there is more downside risk for our Q2 call than upside. But if the Fed does remain on track, then the USD should continue to make steady gains."

"We assign 60% to this scenario."

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