Wednesday, September 23, 2015

Fed: Likely to raise rates regardless of inflation concerns – BBH

FXStreet(Delhi) – Research Team at BBH, suggest that they expect the US Fed to raise rates regardless of what happens to the market-based measures of inflation expectations in the coming months.

Key Quotes

“The Federal Reserve threw investors a curve ball last week. Until then, Fed officials have shown a clear preference for survey-based measures of inflation expectations. Last week, seemingly out of the blue that Fed made reference to market-based measures of inflation expectations. It implied that the decline in the break-evens (difference between conventional and inflation-linked bond yields) got officials' attention.”

“The San Fran Fed's economists compare market-based measures (break evens and inflation swap rates) with surveys of professionals (the Fed conducts a Survey of Professional Forecasters and the Blue Chip Financial Forecasts) and methods including an unchanged forecast and a forecast that assumes the Fed inflation target is reached.”

“Political considerations suggested that a domestic reason be given for the hesitancy. The lack of substantial progress on the price stability mandate was readily available. The Fed overstated its case by citing market-based measures of inflation expectations. And the San Fran Fed economists called it out.”
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