Our view: A first rate hike likely postponed to the meeting in March
The next opportunity to remove the “considerable time” formulation in the forward guidance is now at the scheduled meeting in December, which likely is not consistent with the first interest rate hike in January that we have had in our cards. Remember that the FOMC has emphasised that it is free to lift rates whenever it deems appropriate. The main message of the Committee is that the timing of the first increase in the Fed funds rate, and the appropriate path of the policy rate thereafter, will depend on the FOMC’s ongoing assessment of realised and expected progress toward its objectives. We do not completely rule out a first rate hike in January. The Committee may want to surprise financial markets to decrease their complacent attitude towards excessive risk-taking. At present, when economists are concerned by the signs of a slowdown in many parts of the global economy, it might sound unlikely. But at the latest press conference, Janet Yellen stressed the risk of lulling financial markets into a false belief that the Fed funds rate cannot rise sharply. Be that as it may, we revise our Fed forecast and now expect a first hike in March of next year
