According to analysts at Royal Bank of Canada, recent comments indicate Fed officials are comfortable with the current policy stance, making a near-term rate hike unlikely.
Key Quotes
“While financial conditions have improved so far this year, some of the other “cross-currents” Chairman Powell mentioned following January’s rate decision remain in place. And although we think the economic backdrop remains solid, some mixed indicators of late and steady inflation readings justify a pause in the Fed’s tightening cycle.”
“The question is, will a return to above-trend growth (after what looks like a slow start to the year) be enough for the Fed to raise rates further? Minutes from the January FOMC meeting show division on that point””some participants will need to see inflation surprising to the upside to justify raising fed funds, while others think rate hikes will be appropriate as long as the economy evolves as expected.”
“A fresh dot plot in March should give us some idea of the size of those two camps. Our expectation is that a solid economic backdrop will see the Fed raising rates twice more (closer to the midpoint of most neutral estimates) despite core inflation remaining only slightly above 2%. There is a risk that we don’t see those rate hikes until the second half of the year when the Fed has solid evidence that Q1’s slowing is transitory.”
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