Fed In Wait-And-See Mode; Next Hike Likely In September

What did we learn from Fed Chair Janet Yellen? Her prepared statement contained some worries about inflation, but she later balanced things out. Here is the view from SEB:

Here is their view, courtesy of eFXnews:

SEB Research comments on Fed Yellen’s testimony before the Congress.

“Today’s testimony reinforces our view that the Fed is currently in a wait-and-see mode. It is a close call but we stick to our September hike forecast for the time being.

However, if the weakness in inflation continues we will probably push back our expectations for a hike in December unless the Fed indicates that they put more focus on the tightening labor market and disregards inflation. The inflation readings over the next few months will be decisive for the timing of the next hike.

Yellen was vague on balance sheet reduction stating in the report that it ”will likely begin…this year” and during Q&A “relatively soon”.

We still expect the Fed to decide on balance sheet reduction at the September meeting and announce a start during the fourth quarter,” SEB argues.