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Another strong jobs report from the United States today has all but guaranteed a Fed rate hike on Dec. 16. Of course, this is based on the assumption that the Fed will act in line with its guidance in recent months, something that many of its counterparts failed to do this year, most recently the European Central Bank on Thursday.
The Fed has repeatedly claimed that it intends to raise interest rates this year as long as the economy continues to improve in line with its expectations. Since the October meeting we’ve had two jobs reports – widely seen as the most important and comprehensive of all the U.S. data releases – and combined they have far exceeded market expectations. The October jobs report did 90% of the work and today we saw the knockout blow. If the Fed doesn’t hike now, it would raise massive questions over both its credibility and its ability to effectively communicate to the markets.
The mild reaction in the markets reflects the fact that this rate hike is almost entirely priced in. The only thing that can drive the dollar higher now is a change in expectations for the path of interest rates, with a faster pace of rate hikes being dollar bullish. That said, I’m convinced that when the Fed does hike, Yellen will be keen to manage expectations here and stress that the pace of hikes will be gradual.
http://www.futuresmag.com/2015/12/04/december-fed-rate-hike-all-guaranteed
The Fed has repeatedly claimed that it intends to raise interest rates this year as long as the economy continues to improve in line with its expectations. Since the October meeting we’ve had two jobs reports – widely seen as the most important and comprehensive of all the U.S. data releases – and combined they have far exceeded market expectations. The October jobs report did 90% of the work and today we saw the knockout blow. If the Fed doesn’t hike now, it would raise massive questions over both its credibility and its ability to effectively communicate to the markets.
The mild reaction in the markets reflects the fact that this rate hike is almost entirely priced in. The only thing that can drive the dollar higher now is a change in expectations for the path of interest rates, with a faster pace of rate hikes being dollar bullish. That said, I’m convinced that when the Fed does hike, Yellen will be keen to manage expectations here and stress that the pace of hikes will be gradual.
http://www.futuresmag.com/2015/12/04/december-fed-rate-hike-all-guaranteed
