Fed Likely to Hold Rates | Weekly Review And Preview

  • Tuesday, April 26, 2016

Welcome to Prattle’s “Weekly Review and Preview.” Each week, we analyze the most important communications from the previous week and give our thoughts on upcoming releases.

  • Review

European Central Bank
In brief: Held rates
Analysis: The ECB acted as anticipated during their monetary policy announcement last week, with Draghi simply announcing that rates were unlikely to change soon. The institution seems to be in wait-and-see mode as they determine the effects of negative rates on the Euro economy.

Swedish Riksbank
In brief: Held rates
Analysis: In a hawkish monetary policy announcement last week, the Swedish Riksbank held rates while signaling a potential rate hike in the near future. The bank is currently buying back bonds as the economy continues to gain momentum.

Bank of Turkey
In brief: Cut rates by 50 bps
Analysis: As we expected, the Turkish central bank lowered rates, showing that their new governor intends to stimulate the economy. Similarly to the bank’s rate cut in March, sentiment was trending dovish before the announcement last week.
Federal Reserve
In brief: Cautious about rate hikes
Analysis: Three regional bank presidents gave speeches last week, advocating for gradual future rate hikes.

Reserve Bank of Australia
In brief: Reluctant to engage in stimulus
Analysis: In a keynote speech last week, RBA Governor Glenn Stevens scored slightly hawkish (0.3), overtly decrying quantitative easing and suggesting the RBA does not intend to engage in stimulus. The RBA meeting minutes, scoring a dovish -1.3, noted that the current strength of the dollar–resulting only from growth in commodities–could complicate progress in other areas of the economy.

Bank of England
In brief: Cautiously awaiting Brexit vote
Analysis: BOE policymakers warned against Brexit and signaled that although they won’t raise rates ahead of the vote, rising inflation may cause the bank to raise rates if the vote fails.

Bank of Korea
In brief: Held rates
Analysis: The Bank of Korea decided to hold rates last week after the surprising upset that occurred during the country’s parliamentary election the week prior. Our weekly “Macro Minutes” blog post provided an in-depth analysis of the situation.

  • Preview

Federal Reserve
Forecast: Likely to hold rates
Analysis: With the Fed trending neutral leading up to the FOMC meeting this week, we expect policymakers to implement a wait-and-see approach by holding rates. With several Committee members trending hawkish since the March meeting, a rate hike is conceivable, but highly unlikely since Chair Janet Yellen and NY Fed President Bill Dudley have been the two most outspoken doves of late.

Bank of Russia
Forecast: Likely to hold rates
Analysis: Sentiment from Russian central bankers has been on the rise in recent weeks, but despite concerns about leveling off of inflation, we are not anticipating a rate cut at this week’s monetary policy meeting. The Russian economy is very fragile, and with the government and central bank currently disagreeing on an inflation target, we expect Russian central bankers to proceed with caution.

Bank of Japan
Forecast: Likely to cut rates
Analysis: With the Bank of Japan’s sentiment trending sharply downward since March, we anticipate that the BOJ will cut rates further into negative territory. Despite the yen appreciating since moving to negative rates, Japanese central bankers have undoubtedly been watching the success of negative rates in Sweden and are hoping to replicate that positive outcome.
Bank of Brazil
Forecast: Likely to hold rates
Analysis: Brazil is in political turmoil as they attempt to impeach their president among corruption scandals and instability in their currency. Our data points to relative neutrality from Brazil’s central bankers, so we anticipate that they will avoid the political fray and hold rates steady this week.

Reserve Bank of New Zealand
Forecast: Likely to hold rates
Analysis: While some analysts have projected a rate cut from the Reserve Bank of New Zealand at this week’s monetary policy meeting, the bank has trended neutral to slightly hawkish since the March meeting. We are accordingly expecting no change in policy.

The Prattle Team

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