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Quick Takes: Fed rate hike unlikely in June, September looks more probable

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THE US Federal Reserve on Wednesday opened the door to raising interest rates as early as June - the first hike since 2006 - but downgraded its economic growth and inflation forecast.

THE US Federal Reserve on Wednesday opened the door to raising interest rates as early as June - the first hike since 2006 - but downgraded its economic growth and inflation forecast.

Here are comments from economists on the rate hike:

"We still see two reasons why in the end the FOMC (Federal Open Market Committee) may hesitate to pull the trigger in June: deflation and the strong US dollar. For most of the year the economy will continue to be in deflation and this means that the development of core inflation and inflation expectations will be crucial in convincing the FOMC that inflation will over time return to its 2 per cent target. In fact, the FOMC said today that it wants to be 'reasonably confident' before hiking. The appreciation of the US dollar since last summer is increasingly having a negative impact on US exporters, amplifying the effects of weak global demand for US goods and services." - Philip Marey, senior US strategist, Rabobank

"In her press conference, Mrs (Janet) Yellen indicated that not being patient does not mean they are getting impatient either. She sees rate hikes as data dependent, and may or may not start in June. The prospect of a more dovish Fed led to a massive sell-down of the USD and sparked the unwinding of positions that had been tied to a rate move as soon as June. This has taken the pressure off other currencies, enabling gold, EUR, CAD, AUD and others to rebound in a major way. EUR/USD took a big run at $1.1000 on the news." - Nicholas Teo, market analyst, CMC Markets

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Market voices on:

"All in all, the Fed statement shows that FOMC members will be data dependent but are tending towards a slower pace. The chances that the Fed waits beyond June (our current base case) to raise rates have clearly increased. In addition, the rate hike cycle looks likely to be slow once it does start." - Maritza Cabezas and Georgette Boele, economists, ABN Amro Group Economics

"The Fed does not explicitly refer to the exchange rate, but it looks like USD strength is responsible for the shift, as it slows growth and inflation (and the Fed has cut its 2015 forecasts for both variables). We remain structurally positive on USD, but the pace of appreciation should be more moderate than over the past year. It looks like the data will need to improve rapidly in order for the Fed to move. September now looks more probable, with another rate hike in December." - Richard Jerram, chief economist, Bank of Singapore

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