Home December Fed hike? Not so fast – BNPP & Barclays
Forex News Today: Daily Trading News

December Fed hike? Not so fast – BNPP & Barclays

After the Fed sent us some hawkish signs about a hike in December, not everybody is convinced that that is indeed the case.

Here are the opinions of BNP Paribas and Barclays:

Here is their view, courtesy of eFXnews:

Barclays:

The October FOMC statement was somewhat more hawkish than our expectations heading into the meeting. Without a press conference and with only six weeks having passed since the September meeting, we thought that FOMC members would be unlikely to have substantially altered their views on the likelihood of a rate hike by year-end. With the committee divided between those who believe a near-term rate hike is needed and those who would prefer to maintain the current level of accommodation for some time, we did not see the October statement providing a clear path to either December or 2016. In the event, we see this month’s statement as an active effort on the part of the committee to leave the door open to December.

Over the past few weeks, the market-implied probability of a December rate hike moved lower, despite many FOMC members’ giving speeches in which they explicitly indicated that a December hike was likely. The FOMC likely believed that it needed a strong signal in the October statement if it was to keep any possibility of raising rates in December. In this vein, we view this statement as increasing the probability of December liftoff; however, we continue to see 2016 liftoff as more likely than 2015. We expect the softening of inflation toward year-end to keep the committee on hold this year. The data over the next two months, especially on inflation and employment, will be critical for determining the timing of liftoff and whether December liftoff is possible. We maintain our March 2016 call.

 

BNP Paribas:

The market took the FOMC statement as hawkish because of two key reasons,  notes BNPP Paribas.

1. The first was removing “recent global and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”.

2. The second was saying, “in determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress – both realized and expected – towards its objective of maximum employment and 2 percent inflation.” BNPP clarifies.

“The way we read the first change is that Chair Yellen overplayed the China card in the last press conference and that the events referred to in September are no longer ‘recent”, not that global developments are not significant, since the Fed is still “monitoring global economic and financial developments.”

The second is a clear attempt to stop the market from pricing out December (eg, in response to soft GDP data tomorrow, which the Fed will have had in hand for Wednesday’s meeting) in case the weak recent payrolls look to be a flash-in-the-pan,” BNPP argues.

Our assessment is that December is still not likely (our subjective probability climbed back up to 35%). The Fed has given it an adrenalin shot to keep December’s hopes going, but the patient’s chances look far from promising, since the vital signs in the economy are fading.

…There are those on the FOMC who think the first rate hike won’t matter much, as long as the path priced in is flatter. Hiking in December, but flattening the dots is a way to try to communicate the message, might receive consideration. Overall, we would view such actions as risky and, therefore, continue to feel the Fed will not pull the trigger this year,” BNPP projects.

For lots  more FX trades from major banks, sign up to eFXplus

By signing up to eFXplus via the link above, you are directly supporting  Forex Crunch.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.