24 Mar 2015
Fed still preparing market for rate hikes – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, shares they key comments on rates and USD from San Francisco Fed President Williams and Fed Vice Chairman Fischer’s speech, noting that the Fed is still preparing the markets for rate hikes.
Key Quotes
“San Francisco Fed President Williams spoke overnight and stated that “I think that by mid-year it will be time to have a discussion about starting to raise rates…weighing the pros and cons of taking action at that time”.”
“He emphasized that even as rates begin to rise monetary policy will remain extremely stimulative for some time with rate hikes more like “easing off the gas” rather than “applying the brakes”.”
“In the text of the speech he stated that the US dollar’s strength is a standard function of both weaker economic growth and looser monetary policy abroad.”
“He was also asked about the impact of the stronger US dollar to which he replied “the fact that I’m saying we should raise interest rates sometime this year despite the increase in the dollar says that clearly my view is that the US economy has a lot of domestic momentum…although because of the strength of the US dollar and its effects on net exports, I do see that as pushing growth down somewhat this year and next year”.”
“We continue to believe that monetary policy will diverge significantly between the Fed and the ECB in the coming years resulting in persistent US dollar strength. There is still scope for the US dollar to strengthen further especially, as highlighted by Fed Vice Chairman Fischer yesterday, exchange rates have a “habit of overshooting”.”
Key Quotes
“San Francisco Fed President Williams spoke overnight and stated that “I think that by mid-year it will be time to have a discussion about starting to raise rates…weighing the pros and cons of taking action at that time”.”
“He emphasized that even as rates begin to rise monetary policy will remain extremely stimulative for some time with rate hikes more like “easing off the gas” rather than “applying the brakes”.”
“In the text of the speech he stated that the US dollar’s strength is a standard function of both weaker economic growth and looser monetary policy abroad.”
“He was also asked about the impact of the stronger US dollar to which he replied “the fact that I’m saying we should raise interest rates sometime this year despite the increase in the dollar says that clearly my view is that the US economy has a lot of domestic momentum…although because of the strength of the US dollar and its effects on net exports, I do see that as pushing growth down somewhat this year and next year”.”
“We continue to believe that monetary policy will diverge significantly between the Fed and the ECB in the coming years resulting in persistent US dollar strength. There is still scope for the US dollar to strengthen further especially, as highlighted by Fed Vice Chairman Fischer yesterday, exchange rates have a “habit of overshooting”.”