Fed is close to its next hike - Rabobank

Research Team at Rabobank, suggests that the US Fed is close to its next hike as yesterday, Dudley, Bullard and Powell remained silent on the exact timing of the next hike, though Bullard did add that “December is the most likely juncture”.

Key Quotes

“Evans wasn’t much more specific on the timing, stating only that he could probably see three hikes before end-2017. The FOMC meets next week, but we will likely have to wait until December before the Fed acts. The elections take place only six days after the Fed meets, and picking November for the first hike in almost a year could evoke political repercussions. Even if the Fed were less concerned about a Trump victory now that he has lost ground in the polls, the anti-Fed sentiment in certain quarters on Capitol Hill remains a factor to take into account.

What’s more, the labor market is not showing any signs of overheating, which supports Yellen’s view that the economy has more room to run. Finally, the Fed has not prepared the markets for a November hike with less than a 20% probability priced in in the futures market. A December hike looks like a safer bet. The FOMC intends to squeeze in that hike before the end of the year if economic growth picks up, slack in the labor market diminishes, and inflation rises.

Therefore, Friday’s release of Q3 GDP growth will be of particular interest to the FOMC. After three quarters of disappointing growth (with 1.4% in Q2), the Fed is anticipating a pickup in Q3. The Atlanta Fed’s nowcast stands at 2.0% (as of October 19), but a final update will be published on Thursday.”