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.
With Brexit this is even more true and we think the Fed will 'wait and see' for even longer. 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).
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). Otherwise, the FOMC mainly discussed how to interpret the mixed data, especially the weak jobs reports. The minutes state that the FOMC ' discussed a range of interpretations of these data '.
Copyright © 2016 Danske, eFXnews™Original Article
