Fed could still hike in September but risks skewed towards a later hike – Danske Bank

Research Team at Danske Bank, suggests that before the very weak jobs report the Fed was preparing markets for an upcoming hike in either June or July.

Key Quotes

“In her latest speech, Fed chair Janet Yellen did not repeat that a hike ‘in coming months’ could be appropriate and she highlighted the downside risks to the US economic outlook although she still thinks the positive factors outweigh the negative. She mentioned that while the jobs report ‘was, on balance, concerning’ she thinks that ‘one should never attach too much significance to any single monthly report’. Thus, it seems the Fed has adopted a ‘wait and see’ approach and it seems too early for the Fed to change its economic outlook significantly at this point.

We still think that the Fed will raise rates in September but that risks are currently skewed towards a later hike, as it would probably require a rebound in employment and that the UK remains in the EU. If this is the case, the Fed could prepare markets for a September hike at the July meeting. If September is off the table, the next possibility seems to be December, as the November meeting is less than a week before the US presidential election. If the UK votes to leave the EU, the second hike could be delayed even further.”