Fed Yellen’s Testimony: Fed In Wait-And-See Mode; Next Hike Likely In September – SEB

SEB Research comments on Fed Yellen's testimony before the Congress.

"Today’s testimony reinforces our view that the Fed is currently in a wait-and-see mode. It is a close call but we stick to our September hike forecast for the time being.

However, if the weakness in inflation continues we will probably push back our expectations for a hike to December unless the Fed indicates that they put more focus on the tightening labour market and disregards inflation. The inflation readings over the next few months will be decisive for the timing of the next hike.

Yellen was vague on balance sheet reduction stating in the report that it ”will likely begin…this year” and during Q&A “relatively soon”.

We still expect the Fed to decide on balance sheet reduction at the September meeting and announce a start during the fourth quarter," SEB argues.

Source: SEB ResearchOriginal Article