Lately, analysts have been anchoring to the September 16-17, 2015 Fed meeting for the first step in policy normalization. Odds for a Sep hike still remains a coin flip, however commentary from Fed’s Bullard and several major banks have touted the Sep Fed meeting to bring about the first hike. New Information has come to light on the recent Fed leak wherein the actual Fed policy maker projections appeared to be more hawkish than the leaked staff economic projections.
The Fed staff Economic projections, that formed the backdrop for the June meeting, were inadvertently released on the Fed’s website. This information becomes public, alongside a full transcript of each and every meeting, five years after they occur. The main highlight from the blunder was 1.55% 2015 GDP vs 2.31% released, which lays outside of the bottom of the Fed board member projection range of 1.7-2.3% for 2015.
The Fed does caution not read too far into the slip up, “The projections that were inadvertently released are staff projections that do not incorporate policymakers’ views, including their views on monetary policy… Policymaker views were set forth in the monetary policy statement and projection materials released on June 17 and in the minutes of the June FOMC meeting and the Summary of Economic Projections published on July 8.”
Analysts from Barclays, BofA, JP, and UBS have all expressed Sep as the most likely target for the first hike, some even called for 2 hikes before the year’s end. Fed’s Bullard delivered hawkish commentary earlier in the week “…I see September having more than a 50% probability, right now…”. Despite the bevy of Sep Fed meeting rhetoric, the Eurodollar curve remained relatively unchanged on the week. The Sep 2015 contract was unch at 99.6300 and the December contract closed off the week up a half tick at 99.4600 from 96.4550.
The Fed’s path is highly dependent on incoming economic data. The Jul Fed meeting, this Wednesday, is widely expected to be uneventful and bring little new information as to the timing of the first rate lift off, that is expected before the year of 2015 is out. Note that there is no press conference or accompanying projections this time around.
The all-important Advanced US GDP (exp 2.60%) reading comes out on Thursday morning, analysts will carefully eye the report to see if the Q/Q results are in line with the Fed’s forecasts. Last quarter’s GDP came arrived in line at -0.20%, an upbeat report this time may further reinforce Sep Hike expectations. Treasury auctions this week span the short end into the belly of the curve with the 2s on Tues, 2 FRN Wed, 5s Thurs and 7s Fri. With China in the hurt-locker and the expectations for higher rates looming, it will be interesting to see if the auctions stop through and how indirect purchases perform.
-David Felkai Uptick GMA.
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