In its latest US economic update, NAB said it has changed its view about the likely path of the US Federal Reserve funds rate “in light of recent developments in financial and commodity markets”.
“Our revised projection calls for a slower pace of increases earlier on and also lowers the expected peak rate [to 3 per cent],” said NAB.
NAB ruled out the possibility of the US Fed using negative interest rates as a policy tool as “chatter”.
“Our view is that the most likely trajectory for the Fed funds rate is upwards,” said NAB.
The US unemployment rate, at 4.9 per cent, is already at the long-term level expected by the Fed; there are signs that wage growth is strengthening and inflation is low, said NAB.
“Future tightening by the Fed will likely be quite cautious and sensitive to developments … as a result, we have less than one rate hike a quarter up to mid-2017.
“However, if, as we expect, unemployment keeps falling and inflation moves back up around the two per cent mark then the Fed will want to accelerate the process, but even then still only slowly by historical standards,” said NAB.
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