Fed: Odds continue to favor no rate hikes this year – RBS

Research Team at RBS, suggests that the market participants are waiting for Fed Chair Yellen’s speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Wyoming on Friday, August 26 (10AM EST).

Key Quotes

“The official title of Chair Yellen’s speech is “The Federal Reserve’s Monetary Policy Toolkit”. (Note: Prepared remarks will be posted to the Federal Reserve Board website, but Ms. Yellen will not take any questions from the audience.) Some fear a hawkish tone, setting the stage for another rate hike this year. However, in recent years, this forum has been more academic in nature, examining longer-term issues facing monetary policymakers rather than using it to provide a signal for near-term policy.

Recently, some Fed officials have publicly pondered the prospects for monetary policy in a (potentially structural) low growth and inflation world. In addition, alternative approaches to policy, such as a higher inflation target, nominal GDP targeting, or using automatic fiscal stabilizers have been floated about, and could be expanded upon at Jackson Hole as potential candidates for future prudent planning of monetary and fiscal policy. While a change in approach to policy is far from imminent, the bottom line is that any theoretical discussion at Jackson Hole about the future framework for monetary policy is likely to be dovish (lower for longer).

We continue to expect the Fed will remain on hold throughout 2016. More importantly, however, even if the Fed were to raise rates at some point later this year, we do not believe such action would mark the start of more aggressive action on interest rates.”