A few excerpts from a research piece by Michael Hanson at Merrill Lynch: See you in September
Earlier this year we had expected that the Fed would shift away from risk management toward a more straight-forward data-dependent policy stance, and that the US macro data would improve enough to support a rate hike this summer. Following the soft April jobs report we have reassessed both parts of that view. Despite some Fed officials making the case for a “live” June FOMC meeting, we have been struck since early this year by Fed Chair Yellen’s strongly dovish tone. Meanwhile there has been some loss of momentum in the data so far this year, even if we adjust for 1Q distortions. Thus we now expect the Fed will hike one more time this year, in September. This very gradual hiking pace continues in our view with two hikes for 2017, in March and September.
Notably, we still see a greater chance for a hike at the June or July meeting than current market pricing. There is one more employment report before the 14-15 June FOMC meeting; the April jobs report could turn out to be a one-off disappointment or to get revised higher. We also will have a better idea of 2Q GDP tracking then as well, and somewhat stronger data could help support a summer hike. We don’t think the threshold for another 25bp hike is nearly as high as market pricing implies, but the Fed does need to see signs that continued progress is being made toward its dual mandate objectives. That case is less compelling today. While September is now most likely in our view, the probability distribution for the timing of hikes remains fairly flat overall.
CR Note: I think a June rate hike is still possible, and that the main focus will be on inflation – not employment.