FOMC: A longer “wait and see” after Brexit -  Danske

Analysts from Danske Bank, expect the Federal Reserve to keep rates unchanged until June 2017 and they lowered US economic growth forecast.

Key Quotes:

“Little news in the minutes from the June FOMC meeting, which took place just eight days before the UK's EU vote. Most of the information we already got in the FOMC meeting statement and Fed chair Yellen's press conference after the end of the meeting.”

“Market participants agree that the Fed is on hold for now as markets only price in a fifty-fifty chance of a Fed hike before year-end next year.”

“Now that we know the UK voted to 'leave' the EU, we have lowered our growth forecasts for the US economy from 1.9% to 1.7% this year and from 2.3% to 1.9% next year. The reason is that the US economy is not immune to a slowdown in Europe.”

“Hence, we also expect the Fed to be on hold until June 2017 and only to hike twice next year (we expect the following hike in December 2017). As we have argued for some time, most voting FOMC members have a dovish-to-neutral stance on monetary policy and would rather postpone the second hike than hike prematurely.”

“We think the risk to our Fed view is balanced so the next hike could come sooner if the impact of Brexit on the economy is smaller than we currently expect (or later if bigger).”

“The next important data release is on Friday when the June jobs report is due. Even if we see a rebound after the weak reports in April and May, this would probably not be enough to bring back the Fed hiking theme due to Brexit.”