FXStreet (Delhi) – Research Team at Deutsche Bank, suggest that in the face of a chorus of recent calls for the Fed to hold off raising rates, we see a compelling case for commencing Fed action this week.
Key Quotes
“The US labor market is at or very close to full employment, with good prospects for tightening significantly further, indeed excessively, even if the Fed starts raising rates now.
“While some emerging market economies may be vulnerable, global growth prospects, in our view, have not weakened enough to significantly affect US economic prospects.”
“US inflation is being held down only temporarily by the strong dollar and the downshift in commodity prices, and unit labor cost inflation is already at levels consistent with the Fed’s longer-term objective.”
“This is an economic picture that says it is no longer appropriate for the Fed to be so far away from neutral in both its policy rate settings and its balance sheet policy. The presence of long and variable lags in the effects of changes in monetary policy means the Fed increasingly runs the risk of falling behind the curve on inflation the longer it delays liftoff.”
“While the costs of putting off liftoff will not be apparent immediately, they will likely mount over time, especially if the Fed tries to stick with its signaled intention to normalize policy at a much more gradual pace than it has employed in the past. If the Fed does choose to delay this week, the delay should be a brief one with some indication that the October meeting is very much in play.”
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