It has now been 260 days since the Fed hiked its policy rate 25bp (for the first time in a decade) and all we really know is that, in the words of Fed Chairperson Yellen speaking at the Jackson Hole symposium last week, “the case for an increase in the federal funds rate has strengthened in recent months”. Admittedly some of the more hawkish voting members of Federal Open Market Committee (FOMC), including Vice-Chairmen William Dudley and Stanley Fisher, have more forcefully made the case for a rate hike sooner rather than later.
But as forward guidance goes this is still of limited value beyond the Fed indicating, as it has done throughout most of 2016, that the next move will likely be a hike, rather than a cut, and that it will likely take place this year. As a result the market is still pricing only 7bp of hikes at the Fed’s policy meeting on 21st September and 17bp of hikes (using a weighted average) at its 14th December meeting. Similarly, in a Reuters poll in early August analysts attributed only a 25% probability to a hike in September, versus a 58% probability to a December hike.
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