6 May 2016
FOMC: June rate hike doors closed after NFP - Danske
According to Mikael Olai Milhøj, Senior Analyst at Danske Bank, the Non-farm payroll report in the US was the weakest in seven months and closed the doors for a rate hike at the next FOMC meeting in June.
Key Quotes:
“Recently four Fed members said the door is open to a hike in June, but we think the weak employment growth in April has closed it. Bullard, Williams, Kaplan and Lockhart all said in separate remarks that the Fed may hike at the June FOMC meeting but that it depends on incoming data. While their comments are interesting, we think it is important to remember that most of the voting FOMC members have a dovish stance on monetary policy. In addition, Fed chair Yellen emphasised the downside risks to the economy in her last speech.”
“In our view, the Fed will wait with hiking until the FOMC meeting in September, which would give it more time to judge incoming data and we will also be past the UK’s EU referendum. A hike in June is priced with a probability of around 10% down from 20% a month ago, while a hike in September is priced with a probability below 40%.”
“However despite the weak employment growth, there were also some good things in the jobs report. Average hourly earnings rose by 0.3% m/m for the second consecutive month and the annual growth rate rose from 2.3% y/y to 2.5% y/y. While this is still subdued, wage inflation has been on an increasing trend for the last year as the slack in the labour market has diminished. In addition, average weekly hours rose from 34.4 to 34.5 and the underemployment rate declined to 9.7% from 9.8% previously.”
Key Quotes:
“Recently four Fed members said the door is open to a hike in June, but we think the weak employment growth in April has closed it. Bullard, Williams, Kaplan and Lockhart all said in separate remarks that the Fed may hike at the June FOMC meeting but that it depends on incoming data. While their comments are interesting, we think it is important to remember that most of the voting FOMC members have a dovish stance on monetary policy. In addition, Fed chair Yellen emphasised the downside risks to the economy in her last speech.”
“In our view, the Fed will wait with hiking until the FOMC meeting in September, which would give it more time to judge incoming data and we will also be past the UK’s EU referendum. A hike in June is priced with a probability of around 10% down from 20% a month ago, while a hike in September is priced with a probability below 40%.”
“However despite the weak employment growth, there were also some good things in the jobs report. Average hourly earnings rose by 0.3% m/m for the second consecutive month and the annual growth rate rose from 2.3% y/y to 2.5% y/y. While this is still subdued, wage inflation has been on an increasing trend for the last year as the slack in the labour market has diminished. In addition, average weekly hours rose from 34.4 to 34.5 and the underemployment rate declined to 9.7% from 9.8% previously.”