The Return of Mr Phillips

phillips-curve-19crvc5Summary

The Return of Mr Philips.
Yellen indicates rates will rise in 2015
United States: Headline CPI drops more than expected
United Kingdom: Could UK rates actually fall?

Good morning,

Despite chaos all over the place, the Fed obviously thinks the US is growing strongly enoughto signal that rates will rise by mid 2015.

Taken together, the December FOMC statement, Summary of Economic Projections (SEP), and Chair’s press conference were fairly close to expectations. We saw the statement and SEP as leaning a bit on the dovish side and the press conference as leaning a bit on the hawkish side.

As widely expected, the Committee changed its previous “considerable time” forward guidance to “patience” – this effectively eliminates the possibility of a March rate hike, while June is a viable possibility.

In terms of thelift-off path, Chair Yellen indicated that rate hikes may not proceed in regular, predictable increments like the 2004-2006 hiking cycle, and she expressed a fairly strong opinion against “secular stagnation” or “new neutral” arguments. We are back to the Phillips Curve.

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Global Macro-Daily Note 18th December 2014

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