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Yellen expects higher rates sooner than later – Danske Bank

FXStreet (Edinburgh) - Senior Analyst at Danske Bank Christin Tuxen has assessed yesterday’s speech by Chairwoman J.Yellen.

Key Quotes

“Fed’s Yellen last night confirmed her readiness to hike this month”.

“Crucially, the Fed chair clearly signalled that she prefers to get started on policy normalisation now and then possibly move relatively slowly on rates thereafter”.

“Yellen made a range of key observations: (i) the US labour market continues to tighten and that this will continue,”

“(ii) the underlying inflation pressure is higher than PCE core inflation suggests as it is held back by temporary factors such as a strong USD and lower commodity prices,”

“(iii) the FOMC is not that worried about development abroad and welcomes more easing from China and (iv) the so-called 'neutral rate' will be key in the hiking cycle but as there is great uncertainty regarding the former, the cycle will be highly data dependent, i.e. Yellen keeps the door open for both a more hawkish and a dovish cycle”.

“Our view is still four hikes next year but the December ‘dots’ could be taken down to deliver a ‘dovish hike’ to ensure the US money-market curves does not steepen too swiftly”.

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