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24 Feb 2015
Yellen’s testimony to reflect a rate hike and the data dependence of Fed – Scotiabank
FXStreet (Barcelona) - Camilla Sutton CFA, CMT, Chief FX Strategist at Scotiabank, highlights the key focus for today’s Fed Yellen’s testimonty and further views that the broad takeaway from the speech would be that Fed will hike rates and it is data dependent.
Key Quotes
“Chair Yellen’s semi‐annual testimony is today’s highlight. It is likely to reflect the themes from the Fed minutes, with a focus on the following:
1) Data: the Fed is data dependent and will shift course with the data.
2) Conditions for a hike: include a) further improvement in labour, which we have subsequently seen with the strong nonfarm print; b) stable or rising levels of core PCE inflation.
3) Rate increase: many participants are concerned with premature rate increase; with the balance of risks between too early and too late seeming to favour erring on the side of too late. This discussion could prove the highlight of today’s testimony.
4) Inflation: the Fed noted that the downside risk to inflation forecast have increased due to softening on core.
5) Patience: there appear to be significant concerns around removing the word patience for fear of the message and potential response.
6) International developments: the Fed sees the risk to US growth as lower, but noted China, global disinflation, the Middle East, Ukraine and Greece as important themes.
7) The USD: the strength in the USD is a restraint on exports ‐ but we do not see the FOMC committee as particularly alarmed.”
“The market will watch closely for any indication of the timing of rate hikes; however we expect the broad takeaway to be that the Fed will hike rates and it is data dependent, over time this support a stronger USD.”
Key Quotes
“Chair Yellen’s semi‐annual testimony is today’s highlight. It is likely to reflect the themes from the Fed minutes, with a focus on the following:
1) Data: the Fed is data dependent and will shift course with the data.
2) Conditions for a hike: include a) further improvement in labour, which we have subsequently seen with the strong nonfarm print; b) stable or rising levels of core PCE inflation.
3) Rate increase: many participants are concerned with premature rate increase; with the balance of risks between too early and too late seeming to favour erring on the side of too late. This discussion could prove the highlight of today’s testimony.
4) Inflation: the Fed noted that the downside risk to inflation forecast have increased due to softening on core.
5) Patience: there appear to be significant concerns around removing the word patience for fear of the message and potential response.
6) International developments: the Fed sees the risk to US growth as lower, but noted China, global disinflation, the Middle East, Ukraine and Greece as important themes.
7) The USD: the strength in the USD is a restraint on exports ‐ but we do not see the FOMC committee as particularly alarmed.”
“The market will watch closely for any indication of the timing of rate hikes; however we expect the broad takeaway to be that the Fed will hike rates and it is data dependent, over time this support a stronger USD.”