Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand. On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
Previews of the Federal Reserve interest rate decision from 15 firms
Overall, the consensus seems to expect the Fed to deliver a dovish hike with few see a hawkish hike and only one (Danske Research) sees the Fed skipping hiking at today’s meeting.
TD Research: We think the market is underestimating a hawkish hike from the Fed. This is because the median dot-plot should remain unchanged to confirm 3 total hikes this year and another 3 next, which is well above current pricing. Further, we think the risk of an acute discussion of balance sheet normalization could surface this week. The combination of both should compel a hawkish re-pricing in the Fed outlook.
Credit Suisse Research: With the market 90% priced for a 25bp rate hike, we do not expect much USD upside from such an outcome alone. Rather, we would need to see a statement, forecast changes or a Q&A with Fed chief Yellen that allows room for the market to fully price in another hike for 2017 H2.
Credit Agricole Research: We expect the FOMC to raise the fed funds rate by 25bp: the hike is fully priced in and doing otherwise would trigger market volatility that the Fed would be keen to avoid…There should not be any formal announcements with respect to the balance sheet policy but that could come as soon as the September meeting. Indeed, the risk is that the Fed could hint at an earlier balance sheet exit than the market is currently expecting. Coupled with an unchanged dot plot this could be enough for the US yields and the USD to move higher after the Fed.
The USDJPY has moved below the June lows at 109.11 and traded down to 108.94.
US yields are tumbling lower after the weaker retail sales and CPI data today and that certainly is contributing to the selling in the pair/ the selling of the dollar.
The 2 year is down 6 bp to 1.302%. The 10 year is down 8.7 bp to 2.1221%. That is now below the 38.2% of the move up from the July 2016 low (at 2.1346%). The low yield is the lowest since November 2016 (US elections). Does the yield make a run at the 2.00% level?
Oil demand should outpace supply in the second half of this year but excess inventories will persist well into 2018, dealing a blow to global crude producers enacting output cuts to bring down stubbornly high stockpiles.
The forecast from the International Energy Agency comes as higher than expected demand growth next year is met by even stronger output from the US and other producers outside of the Opec cartel.
In its monthly oil market report, which include forecasts for next year, the Paris-based energy agency said: “[The] outlook for 2018 makes sobering reading for those producers looking to restrain supply.”
Opec and Russia have this year joined forces to cut output and reduce an oil market surplus that is keeping pressure on prices. Producers agreed in May to extend production cuts for a further nine months as US shale production accelerates and countries exempt from the curbs pump more.
The IEA expects global demand growth will increase by 1.4m b/d next year- from 1.3m b/d in 2017 – as China and India take total consumption to a record 99.3m b/d.