Fed call: No change and little chance of rate hike before September - RBS

Research Team at RBS, suggests that their takeaway from the June FOMC meeting and Yellen’s semi-annual Congressional testimony is that the Fed is in no hurry to raise rates.

Key Quotes

"Considerable uncertainty about the economic outlook remains." Some of these uncertainties – including whether domestic demand will falter, whether the slowdown in productivity will continue into the future, the outlook for China and the Brexit vote -- will be resolved sooner than others. However, Yellen has stressed that the Fed must move cautiously, especially given how low the funds rate is and the "limited room" policymakers have to reduce the funds rate if the economic outcome were to disappoint.

In addition, the Fed believes that headwinds (including global developments, subdued household formation, and meager productivity growth) mean the neutral rate is lower by historical standards and that rates should be further below the neutral rate for longer (as signaled by the Fed’s updated “Dot Plot” projections). In the end, this is a cautious Fed (one that believes it is better to move too slowly rather than too quickly), facing "considerable uncertainty."

We find it nearly impossible to believe policymakers would contemplate hiking rates just five weeks from now, even if the UK votes to remain and the June jobs report showed a healthy rebound. In fact, our call for a Fed rate hike in September is looking less clear, though economic conditions and Fed thinking can shift quickly, as we have seen before.”