Fed: Tetralogy of hikes to come in 2016 and 2017 – BAML

FXStreet (Delhi) – Research Team at BAML, suggest that after the FOMC failed to hike, and delivered a relatively dovish message, the analysts at BAML see this as a tactical delay and expect the Fed to hike faster than the market is pricing in, with four hikes in both 2016 and 2017. In addition, the team has pushed out their forecast of the first hike to December.

Key Quotes

“There were two key messages in the Fed’s directive. First, they are very concerned about global economic and financial developments. They first noted that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

“And then, just to make sure everyone gets the message, they wrote, “The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad.””

“In her press conference statement Yellen added “the drop in equity prices, the further appreciation of the dollar, and a widening of risk spreads” to her worry list. The other new message was some concession on inflation expectations: the old directive said that “market-based measures of inflation compensation remain low”, while the new directive said they “moved lower.””