COUNTDOWN TO LIFT-OFF
We don’t think the Fed provided much additional clarity on the timing of the first lift-off following their convocation last week. While they supported their contention that rates would remain low for longer by reducing their 2016 and 2017 “dots” expectations, the average for 2015 was essentially unchanged. The weak 1Q:15 GDP results also necessitated tweaking FY 2015 growth estimates, but forward year expectations were mostly untouched, while we viewed the slight rise in in the unemployment rate positively. Given this backdrop, the Fed appears ready to start its lift-off process in the early fall, especially with no dissenters to the policy statement for the 4th consecutive month. We were therefore taken somewhat by surprise by the completely dovish tone that Chairman Yellen adopted during her press conference, where she stressed the timing of hikes rather than the actual start of the process. She also stressed the need to see additional signs of improvement on numerous economic fronts before starting the lift-off process. Since her press conference stands in stark contrast to the policy statement, we can envision a bit of horse trading between the doves and hawks in order to obtain a full consensus from the committee. We have argued that there are super-dots within the dot chart and it now appears that Yellen likely stands in the group that of 7 that expects one or less rate hikes this year. We suppose that this does not preclude a September/October increase so will therefore stick with our ongoing guess of early fall as the likely timing of the first hike. This would give the remaining 10 FOMC members the ability to evaluate incoming data and possibly push for a second increase before year end as their dot plot vote suggests
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