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Hawks tone on Inflation and Fed Funds Rate

April 9, 2015 9:52 am

On Wednesday (8th April, 2015) the Federal Reserve released the minutes of 17/18th March FOMC Statement for the expectation of future economy with market trends set the tone as hawkish, after the released dollar index rose and stood on the 98 mark on New York time. The summary of Federal Reserve minutes set tone to hawkish discussion on interest rate hike in June, after critically compare the inflation with core inflation, also with GBP growth and shows the clear sign to raise interest rates in June or later this year on stronger than market expectations, as per overall observations the market interpreted as a partial summary of the hawks.

The FOMC meeting participants submitted their projections for real output growth, the unemployment rate, inflation, and interest rate from 2015 to 2017. The Fed Committee reasonably confident about inflation that will move back to Fed target 2%. In February inflation as measured by personal / household consumption expenditures price index, near the range at 0.3%; in fact, if exclude energy and food components from core inflation that was at 1.4%. So that the continuous decline in oil prices effect prices of dollar on imports, so before the declining in oil prices both headline inflation and core inflation were running at about 1.5%.

So, if the oil prices stable, then the clear expectations about future economic condition return to earlier levels and roughly the estimate about inflation and core inflation rise gradually to near Fed target level 2% i.e. our main objective for improvements in labor and product markets, in other wording the current low inflation readings measured by the survey-board in the United States have been stable. I expected that the overall economic conditions will support the first rate increase later this year.

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