HALISTER1: Fed Could Use Additional Time to Prepare Mkts for a Hike: UBS

Fed Could Use Additional Time to Prepare Mkts for a Hike: UBS

(Bloomberg) -- Assuming Fed wants to continue letting financial conditions ease and avoid a “tantrum,” it will need to provide consistent message over time, UBS economists Drew Matus, Maury Harris, Samuel Coffin, Dave Liang write in note.
  • “Reasonable” for FOMC to take additional time to prepare mkts for rate increases; however, “that time is not unlimited”
    • UBS’s forecast for improving growth in 2H suggests next rate hike will be in Sept., followed by one in Dec.
  • At this wk’s mtg, Fed is likely to reinforce view of healthy economy, while noting divergence between growth and jobs
    • Should also assert that inflation will move toward 2% over medium term
  • There’s risk that Fed “fixates” on weak backward-looking data rather than signaling economy continues to grow, further complicating its message
    • Growing division on FOMC suggests Fed will continue to face challenges in communications, with fewer members likely to give consensus view that would reflect most possible course of action, UBS economists wrote in separate note
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Drew Matus (UBS Asset Management Japan Ltd)
Maury Harris (UBS Asset Management Japan Ltd)
Samuel Coffin (UBS Global Asset Management Japan Ltd)
David Liang (UBS Securities LLC)

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