US loans rates to rise at least twice, ECB also suggests more rises

The US’s FOMC minutes were released yesterday evening and the initial reaction was to focus on dovish aspects, which included sentiments that rates were close to neutral. The minutes also flagged changes to the language of the FOMC statement from further tightening “may” be necessary to “might” be necessary.

Does “might” imply less probability than “may” or is this just ‘Speechology’ justifying its existence?

The market still has a 95% probability priced in for a 25bp hike in March along with a 50% chance of a hike in May. Either way there is plenty of data to digest before either of these events.

Elsewhere, ECB board member Garganas made remarks to Trichet, repeating the view expressed that inflation risks have increased. ECB member Wellink also this week urged the need for vigilance and confirmed that the Eurozone economy was gradually coming back on track.

Today we see the release of the Bank of England minutes where we widely expect a show of 8-1 no change despite rumours from a Sunday newspaper that the vote was 5-4. Such a disparity is unlikely, especially considering an recent optimistic Inflation Report.

There is a chance that one or two members voiced concerns about the extent of GDP recovery in the MPC’s central projection and will play up the downside risks.

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