The coordinated agreement on a production cut between OPEC and non-OPEC members could throw another spanner in the works for the Fed which is already likely to have a tough time providing accurate projections for the coming year, given Donald Trump’s ambitious spending plans. Assuming the cuts are implemented as planned which is far from certain, the moves in oil prices could provide further inflationary pressures for the Fed at a time when inflation is already expected to rise and any fiscal stimulus will only add to this.
Against this backdrop, the Fed may be forced to raise interest rates at a faster pace that it had planned and the markets have currently priced in. With this in mind, and given that a rate hike tomorrow is almost entirely priced in, the Fed’s projections and dot plot combined with Fed Chair Janet Yellen’s comments in the press conference could be crucial in determining whether the santa rally makes it to the new year. Investors haven’t been easily spooked recently but the prospect of three or four rate hikes next year may be enough to do it.
Against this backdrop, the Fed may be forced to raise interest rates at a faster pace that it had planned and the markets have currently priced in. With this in mind, and given that a rate hike tomorrow is almost entirely priced in, the Fed’s projections and dot plot combined with Fed Chair Janet Yellen’s comments in the press conference could be crucial in determining whether the santa rally makes it to the new year. Investors haven’t been easily spooked recently but the prospect of three or four rate hikes next year may be enough to do it.
