Fed Hike In December is Still A Possibility
This week the Federal Reserve decided not to raise rates as they continue to want more time to evaluate the effects of slowing global growth on the United States economy. Many were expecting this outcome but the Fed’s hawkish comments catch many investors by surprise, as many were expecting a more dovish outlook. The strongly worded statements confirmed that the FOMC is ready to raise interest rates and keeps the option of hiking in December still on the table. The future markets reacted according with the probability of a hike in December increasing from 33% to 50%. Economic data points continue to add uncertainty to the market with consumer spending continuing to be weak and unemployment reaching its lows. There have also been some encouraging signs from abroad with China cutting interest rates, lending and deposit rates. The FOMC’s statements shows that they seem to be less worried about global growth headwinds and more concerned about slowing payroll. Many analysts believe that if there is continued payroll weakness, the Fed may push off hiking rates to 2016 but if there is any liftoff in payroll pressure, December would be a likely option. It will be interesting to see the global implications of the US hiking rates as US monetary policy diverges with the rest of the global. As the rest of the world continues to cut rates, the USD will continue to see strength which puts pressure on many of the EM countries who have a substantial amount of USD denominated debt.