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Macro Comment US — Financial conditions key to the Fed

We are convinced that financial conditions-both actual and expected-are key to understanding why the Fed has not delivered in line with its forward guidance since the start of policy normalisation in late 2013. However, at present, consistency between forward guidance and policy delivering seems to be improving. So far in 2017, actual rate increases have been in line with the Fed's forward guidance. Nevertheless, we expect financial conditions to deteriorate sharply in the future, which will contribute to an end of policy tightening in 2018 and to prompt a recession in 2019.

Macro Comment US — Balance sheet reduction and financial markets

In June, the Fed announced a detailed plan for balance sheet reduction, before it had assessed the amount of securities needed to carry out policy in the future. The amount depends on monetary regime. The choice has not yet been made. The Fed Chair, Yellen, does not believe that the reduction would affect financial conditions much. Yellen's intention is for the reduction to run quietly in the background for years, while monetary policy is operated through adjustments of the Fed funds rate. In our view, Yellen is a little too optimistic.

Fast Comment US — Rate hikes and plans to start balance sheet reductions this year

  1. Our forecast: balance sheet reduction to begin in December this year
  2. A final cap on balance sheet reductions of USD 50bn per month
  3. Our forecast: rate increases in September 2017 and March 2018

Monthly Macro Update — Recovery phase is about to end

US: 'Goldilocks scenario' will not last long
Eurozone: Approaching balanced growth
UK: Brexit negotiations thrown into chaos
Nordics: Short-term resilience

Ann Öberg, Head of Economic Research |

Fast Comment US — May payrolls weaker than expected at 138,000; April revised down

  1. May payrolls at 138,000; weaker than expected
  2. The unemployment rate declined to 4.3 percent from 4.4 percent in April
  3. Fed to raise rates in June, we expect

Fast Comment US — April payrolls at 211,000; stronger than expected

  1. The unemployment rate dropped to 4.4 percent, from 4.5 percent in March
  2. Hourly earnings were in line with expectations
  3. Confident Fed to raise rates in June