Fed’s Fomc minutes do not signal imminent rate hike

Mirabaud continues to expect the Federal Reserve to start thinking about a policy hike only in the second half of the year, given that economic data is likely to disappoint and the inflation mandate is unaccomplished.

Though last week’s FOMC minutes showed that Fed officials think a rate hike may be appropriate “fairly soon”, we do not think that a March 15 increase is the most likely scenario. One reason is that recent communication by Fed officials did not re-inforce a hawkish message of an imminent rate move, following the testimony of Fed Chair Yellen. This Friday’s speech by the Fed Chair will be important. As to economic numbers, “hard” data continue to disappoint, with the durable goods report indicating a pullback in core capital goods orders. While overall orders rose nearly 2% in January, this gain was driven by volatile categories (aircraft +70%, defence +8%). Importantly, non-defence capital goods orders (excluding plane orders) fell 0.4%. Overall, this implies that following the earlier rebound, the outlook for near term equipment investment is lower, despite the continued optimism in surveys.

Gero Jung – Chief Economist – Mirabaud AM