Fed's FOMC may keep policy rate unchanged

The Federal Reserve's FOMC meeting is likely to be held on 29th July.

The FOMC has indicated that it is unlikely to signal a rate hike ahead of time, instead opting for the full flexibility of a data-dependent approach. But Societe Generale expects a little scope for changes in the postmeeting statement, as the economic assessment could be marginally more upbeat. 

Societe Generale notes the Fed governer Chair Yellen statements, "The Fed has a strong desire to begin policy normalization and would like to start the process sooner rather than later. The hurdle with respect to domestic data appears to be quite low and we believe that economic conditions will support a rate-hike decision by the September FOMC meeting. If there is a delay, it will likely be driven by international or financial developments. Just two weeks ago, market participants believed that Greece and China would make it impossible for the Fed to hike this year. Today, this is giving way to new renewed concerns about the dollar's strength and commodity price weakness potentially delaying the Fed. Our central scenario remains for a September hike. Admittedly, financial conditions do have the potential of delaying the Fed."

Societe Generale argues, "The dollar would have to appreciate more noticeably and energy prices would have to remain well below $50/barrel throughout the summer months. We view such conditions as unlikely (click here for a more detailed analysis). Even if FOMC participants agree that September is a likely timeframe for lift-off, they are unlikely to include any signals in this week's statement. Indeed, we see very little scope for changes in the FOMC statement. The June communiqué noted that "economic activity has been expanding moderately after having changed little during the first quarter" and this remains true today."