Fed: Door open for action but recent data suggest no urgency for September move - RBS

Research Team at RBS, suggests that the recent lacklustre economic releases from the US is likely to result in delay of interest rate hikes from the Fed and it is unlikely to move rates in its upcoming policy meet in September.

Key Quotes

“The employment report for August was lacklustre, with a below-trend increase in payrolls (151,000), a drop in hours worked (marking the shortest workweek since February 2014), a decline in the year/year growth in average hourly earnings (from 2.7% to 2.4%), and a steady unemployment rate (4.9%). On balance, the August employment report suggested no upward momentum in the labor market.

In our view, the data reported last week (e.g. core PCE deflator, ISM manufacturing survey, auto sales, and the employment report) did not meet the two criteria for further rate hikes laid out in the July FOMC minutes: namely, the results did not increase confidence that (1) inflation is moving closer to 2% on a sustained basis and (2) economic growth is strong enough to withstand a possible downward shock to demand.

Thus, we believe the Fed will wait for more information before concluding that a further rate hike is warranted and have lowered our odds for action in September. While a move in December remains possible, that meeting is a long four months away. At this time, we continue to assign no better than even odds that the Fed hikes interest rates this year.”