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Fed rate hike cycle to depend on the economy – Deutsche Bank

FXStreet (Delhi) – Jim Reid, Research Analyst at Deutsche Bank, notes that the Fed Vice-Chair Fischer has acknowledged that he was in the camp in September expecting a Fed rate hike this year, but signalled that ‘both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy’.

Key Quotes

“Fischer highlighted that there are ‘considerable uncertainties’ around the US economic outlook, while noting also that the recent US jobs report was ‘disappointing’. Fischer went on to say that the Fed has to ‘remain cognisant of the risks ahead’.”

“There was plenty of Fedspeak on Friday too for markets to digest with the majority still pushing for a move this year, but with more and more warning signs creeping in. Atlanta Fed President Lockhart, seen as something of a centrist, kicked things off by reiterating that he continues to see the Fed lifting off at either the October or December meeting, but at the same time noting there is more ambiguity in the current moment relative to a few weeks ago, while the latest US jobs report highlighted that there is ‘a touch more downside risk’ to the US economy.”

“He was then followed by the NY Fed President Dudley who also said that he is expecting a rate rise this year, but noting that the ‘economy is downshifting a little bit’ and that ‘inflation is below our objective’, while pointing out that his view is not a commitment, highlighting that we’re set to get a lot of data between now and December.”

“Meanwhile, the Chicago Fed’s Evans continued to emphasize his dovish view, saying that a delay in Fed liftoff until mid-2016 and then a gradual path thereafter ‘would be consistent with us getting inflation back up to 2% within a reasonable period of time’.”

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