Fed: Expect two-three hikes this year – Danske Bank

The FOMC minutes yesterday evening did not give markets much news to trade on, as was reflected in the muted market reaction, according to Senior Analyst, Kristoffer Kjær Lomholt at Danske Bank.

Key Quotes

“The Fed is still divided between doves and hawks/centrist: doves think inflation is below 2% due to slack in the labour market and lower inflation expectations while the hawks/centrists think the tighter labour market will soon translate into higher wage growth and hence underlying inflation pressure. One interesting thing to note from the minutes, however, was that an alternative policy framework of price level targeting again was discussed. We continue to expect two-three hikes this year with two hikes as our base case. We do not think the change of Fed board members will change that.”

“Prior to the FOMC minutes, ISM manufacturing rose to 59.7 in December from 58.2 in November, thereby heavily beating our and market expectations. The details were also encouraging with not least the new order component rising to the highest level since the mid-early 00s. The release suggests that the manufacturing recovery is not only continuing in the US but that it might re-accelerate slightly.”