Fed unlikely to raise rates a week before the US election - Commerzbank

The Fed is most unlikely to increase interest rates a week before the US presidential election, but it should deliver the rate step at its December meeting as the economic data are moving in the Fed’s desired direction, said Bernd Weidensteiner, analyst at Commerzbank

Key Quotes

“Firstly, growth is likely to have accelerated considerably again.. Secondly, there are growing signs that inflation pressure is increasing a little. Longer-term market-based inflation expectations have risen by about 30 basis points since the start of the year and are back to where they were at the time of the first rate hike in December 2015. These data meet the criterion of further progress towards their targets, cited by the Fed in its last statement as the precondition for an interest rate rise.”

“The Fed could indicate in the statement published after its meeting next week that it now sees even more reasons for higher interest rates. It will repeat its view that the economic risks are now balanced – this can be understood to mean that the traffic light for a rate rise is on green. Three FOMC members are likely to cast dissenting votes again, preferring an increase of the federal funds target corridor.”