We covered the dovish Fed and also took 5 dovish points on what the Fed said. Here are two opposing opinions from BNP Pariba and SEB:
Here is their view, courtesy of eFXnews:
June FOMC: A More Dovish Hand Supports Our Call For No Hikes This Year – BNPP
The Fed’s communication was more dovish than expected, despite virtually no change in the economic forecasts, implicitly acknowledging increased downside risks (despite no explicit statement on that balance).
There was a larger than expected shift down in the 2016 interest rate dots and no hawkish dissent. Six participants now foresee only one hike this year (compared with one participant in March). This suggests a desire for considerably more evidence before the next move. The tone of the economic assessment struck a balance between a slower pace of improvement in the labor market with a pick-up in economic activity.
The suite of Fed communication gives us further support to our forecast of no rate hikes this year, with the market’s pricing of the probability of a rate hike in July now just 5.9%.
Still Too Early To Give Up On A July Hike, But September An Attractive Alternative – SEB
As expected, the Fed statement acknowledged the ugly May employment report, suggesting that the improvement in labor market had slowed the drop in the unemployment rate notwithstanding. That said, the undertone was still relatively optimistic since economic growth was picking up and consumer spending had strengthened according to the statement. Moreover, housing was still strong and the drag from net exports appears to have lessened while business investment is still weak. So the labor market was downgraded – the main reason not to hike – while growth assessment was somewhat upgraded compared to the April statement.
While the policy clues were few and far apart, going forward the committee expects the labor market to strengthen, while the low (headline) inflation today will likely turn higher since it is a function of past declines in energy and import prices. As such, it is still too early to give up on a July hike, although September indeed is looking like an attractive alternative. But even with a strong June employment report, the UK must vote to remain in the EU and the Fed must work hard to manage market expectations for a summer hike too, no?
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