\nReserve embarked on another round of QE.
\n
![\"la_fed_passe_son_tour_-1-2.jpg\"](\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2015\/09\/la_fed_passe_son_tour_-1-2.jpg\")
<\/a><\/p>\nYet, back in July, Janet Yellen had explained that the US economy \u201ccan not only tolerate but needs higher rates\u201d<\/em>. Clearly, developments in China, the strength of the US dollar and the downturn in commodity prices tipped the The real change in the FOMC Statement lies the assessment that the \u201crecent global economic and financial There remains that the Federal Reserve is not hugely enthralled by the improvement seen by the labour market, Our scenario remains based on largely positive economic growth in the short term: while we are less bullish than the The weak inflation is explained by two main factors: (1) the main factor is the decline in crude prices, over which the Before the FOMC meeting, the market\u2019s view was that there was a 30% probability of an interest rate in September, Currently, FOMC members expect rates to be raised once this year, whereas at the June meeting they expected two Next year, members see the Fed Funds rate around 1.375% at the year-end, which not as low as was being anticipated before.<\/p>\n Over the long run, the members put the equilibrium level at 3.50%, down from 3.75% previously.<\/p>\n The scenario therefore remains for a monetary tightening cycle that does not add up to real normalisation of Average rise in Fed Funds rate during previous monetary tightening phases<\/strong><\/p>\n
\nIt seems that the timeliness of an interest rate hike was discussed, but the FOMC decided that \u201ca little more time
\nwas needed\u201d even though there was a case for acting now, as pointed out by Janet Yellen during the press
\nconference.<\/p>\n
\nscales, the Federal Reserve taking the easy option, i.e. way for better visibility. The fall in crude oil prices and the
\nappreciation of the US dollar will drive down inflation for slightly longer than had been envisaged initially by the
\nFOMC.<\/p>\n
\ndevelopments may restrain economic activity somewhat and are likely to put further downward pressure on inflation
\nin the near term\u201d. China and emerging countries are seen as a risk for US exports, but not to the point of
\nundermining the FOMC\u2019s global scenario according to Janet Yellen, who explained that the \u201csituation abroad bears
\nclose watching\u201d.<\/p>\n
\nwhich was played down. NAIRU has been lowered to 4.9%, although the Federal Reserve need not wait until this
\nlevel is reached before acting.<\/p>\nOn balance, we now expect the Federal Reserve to move in December.
\nThe Fed Chair repeated that \u201cevery meeting is a live meeting\u201d, adding that a rate increase could be
\ndecided at the October meeting, at which point the Federal Reserve would call a press briefing.<\/quote><\/p>\n
\nmarket consensus, our estimates nonetheless imply that growth will lastingly exceed its potential, which ought to
\nlead to another improvement in the labour market. With relatively strong growth in employment, average hourly
\nearnings that should accelerate slightly, and an improvement in purchasing power from lower gasoline prices,
\nconsumption will remain the main engine of growth. The construction sector can also be expected to fuel growth
\ngoing forward. Although we see two factors that are likely to hold back growth (woes of the mining sector, negative
\ncontribution by foreign trade), the economic environment will remain buoyant. Concurrently, our assessment is that
\nexternal risks (China in particular) would have limited consequences for the US economy. At any rate, these risks are
\nnot such as to bring into question the monetary tightening cycle planned by the Federal Reserve.<\/p>\n
\nFederal Reserve exerts no influence; and (2) the lagged impact of the US dollar\u2019s appreciation on the price of
\nimported goods, which can be expected to fade rapidly. The transitory nature of these factors, the stability
\ndemonstrated by inflation expectations and rise in prices for services mean that the Federal Reserve has a
\nsufficiently high level of confidence to anticipate inflation recovering to 2% (which is the central bank\u2019s official target)
\nwithin two years.<\/p>\nTiming according to Fed Funds futures<\/h2>\n
\nwith one interest rate hike priced in full by the end of the year. Two further interest rate hikes in 2016 were priced in
\nby Fed Funds futures. After the meeting, the market still doubts rates will be raised this year (only a 50% probability
\nof a hike by December), even though the dot plot suggests that the Federal Reserve will move before the end of the
\nyear.<\/p>\n
\ninterest rate hikes this year.<\/p>\n
\nmonetary policy, but rather a slight tightening, i.e. far more subdued than previous monetary tightening cycles. Even
\nthen the 3.50% equilibrium level may seem nearly optimistic.<\/p>\n<\/a><\/p>\n