Fed Call: No rate hikes for the foreseeable future - RBS

Research Team at RBS, suggests that the strength of recent key economic reports (e.g., employment, ISMs, retail sales, and CPI) should allay concerns that the US economy was losing too much momentum ahead of Brexit.

Key Quotes

“Of course, the extent to which the global economy may lose momentum post-Brexit remains unclear. Beyond Brexit, political uncertainty will persist, with US presidential elections in November, national elections required in both France (by May 2017) and Germany (by October 2017), and potential EU referendums in other nations (e.g. Sweden) as well.

In addition, monetary policy divergence (with easing now expected from the BOE, ECB and BoJ) should keep upward pressure on the dollar, which in turn will create a headwind for the US growth. So, while financial conditions have reversed much of the tightening seen in the wake of the UK vote, the economic impact of recent developments on US business investment and hiring will take much longer to ascertain. For this reason, we still believe the odds of a September rate hike have not changed meaningfully in the wake of stronger data (which depicts a pre-Brexit world).

We remain comfortable with our expectation that the Fed will remain on hold for the foreseeable future. In our view, while rate hikes are possible at some point, the timing is sufficiently distant (and global developments sufficiently uncertain) that we see no value in forecasting additional action at this time.”