Fed: Banking on the Phillips curve – Rabobank

Philip Marey, Senior US Strategist at Rabobank, explains that recent US data confirm that core inflation continues to undershoot the Fed’s 2% target and however, the FOMC has become less sensitive to the economic data and believes that the Phillips curve will become visible in the medium term. 

Key Quotes

“Since the Fed has become model-dependent rather than data-dependent, we doubt that the remaining data until the December 12-13 meeting will change the Fed’s mind. Therefore, we now shift our call for the next Fed hike to December.”

“If we look to 2018, we expect that core inflation will continue to disappoint and slow down the Fed eventually. Therefore, we expect only two hikes in 2018 instead of the three hikes that are implied by the September dot plot. However, the new composition of the FOMC, possible tax cuts, and a sudden materialization of the Phillips curve could alter our forecasts.”