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15 Dec 2014
Watch out for a change in Fed vocabulary this week
FXStreet (Mumbai) - Markets keenly await the Federal Reserve (Fed) policy statement due tomorrow, which may show a critical change in the outlook leading to a rise in the probability of interest rate hikes next year.
With quarterly growth number at decade high and a strong addition of 321K jobs in November, highest since January 2012, the markets are expecting the policy makers will nudge up their GDP expectations for 2015 and 2016, while lowering inflation and unemployment forecasts.
It will be interesting to see how the Fed officials decide to communicate their intent to raise rates at a time when the global economic recovery seems to have stalled. The Fed may drop the “considerable time” phrase and replace it with a “slow lift-off in the interest rates” that is data dependent. However, a below-target US inflation rate may tempt the policy makers to stick with “considerable time” language.
Meanwhile, Fed’s interest rate projection or dot chart will give a clear picture of how the policy makers see the interest rates in the next year. In September, they suggested the overnight federal funds rate could rise to about 1.25% by the end of 2015, and about 2.75% a year later. With strong domestic economy, the Fed dot chart may show an upward revision in interest rate expectations.
With quarterly growth number at decade high and a strong addition of 321K jobs in November, highest since January 2012, the markets are expecting the policy makers will nudge up their GDP expectations for 2015 and 2016, while lowering inflation and unemployment forecasts.
It will be interesting to see how the Fed officials decide to communicate their intent to raise rates at a time when the global economic recovery seems to have stalled. The Fed may drop the “considerable time” phrase and replace it with a “slow lift-off in the interest rates” that is data dependent. However, a below-target US inflation rate may tempt the policy makers to stick with “considerable time” language.
Meanwhile, Fed’s interest rate projection or dot chart will give a clear picture of how the policy makers see the interest rates in the next year. In September, they suggested the overnight federal funds rate could rise to about 1.25% by the end of 2015, and about 2.75% a year later. With strong domestic economy, the Fed dot chart may show an upward revision in interest rate expectations.