Posted on Thursday, 22nd July 2010 by Charlotte W
Federal Reserve Update
We expect FOMC to raise rates in 3Q11
We have pushed back our baseline forecast for the first Fed funds rate hike to 3Q11 from 1Q11. Recent economic trends confirm substantial economic slack remains and the pace of growth is going to ease in the second half of the year. While the labor market is improving, the tempo is not sufficient to result in a marked improvement in the unemployment rate. In addition, inflation expectations are well anchored and core inflation is expected to remain subdued through 2012. These trends are consistent with our baseline scenario for 2010-11. However, the increased economic weakness has surprised the Fed on the downside. Furthermore, new risks have emerged due to Europe’s sovereign debt problems, which have added substantial uncertainty to the financial markets and economic outlook. Given the increased uncertainty and risks, Fed members are more cautious and will delay interest rate hikes at least until 3Q11. If downside risks increase further, the Fed could re-start quantitative easing measures to assure financial stability.
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Tags: 3q11, Expect Fomc, Raise Rates
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