Post FOMC meeting reactions - US rates now in focus

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Livewire Markets

Post FOMC meeting reactions - US rates now in focus. Whilst the end of QE came as no surprise, Livewire was interested to understand the views of our contributors on the timing of the first rate increase and where they see the Fed funds rate peaking in this cycle. The market is currently pricing a rate rise in Q4 FY15, however, of those surveyed by Livewire, expectations were for an initial rate hike in either Q2 or Q3 of FY15. Historically, the neutral level for the Fed funds rate has been around 4.5% - 5%. Expectations for this cycle, however, are substantially lower. Sean Callow, Snr Currency Strategist at Westpac, sees rates peaking at 2.5%, which is lower than current Fed long-run projections. He says this is due to an ageing population, debt overhang and subdued wages growth that is likely to persist. The chart below shows the average FOMC members forecast from Sept 2014 vs current futures pricing. A divergence remains despite this mornings' slightly hawkish statement.

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