Central Banks: Mid-2016 for a BoE hike, US rates at 1.50% by December 2016

With central banks remaining the main theme in the markets, we discuss the interest rate scenario in US and UK, with Philip Shaw, Chief Economist at Investec.

FOMC: December hike likely, but needs to offer some guidance for pace of liftoff

Shaw says that the US economy is in a much better space to see a December rate hike by the Federal Reserve, but if the Fed raises rates in its 16th December meeting, what sort of guidance will it provide for the year ahead?

He believes that the Fed will move by 25 basis points in the next month and try to layout a little bit of guidance for the pace next year. He forecasts the US rates to be at 1.50% by end 2016, basing this on continued forward momentum in spending and the CPI.

Rates liftoff: What happens if Dollar goes through the roof?

Shaw believes that the dollar might see a spike in the next 5-6 weeks, and if it continues to rise in 2016 would affect the pace of the hike.

He adds that the Fed will try and dismiss any modest moves in the currency.

UK rate cycle: nothing for 2015

Shaw notes that there is no pressure in the UK market to raise rates, with the inflation still being in negative territory.

He expects the CPI to rise at the turn of the year, and says that the MPC is a little bit too pessimistic on their CPI projections next year.

Their baseline case is for the Bank of England to raise rates in the middle of 2016.

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