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Nobody was expecting a hike in October after the no-hike in September, but Fed officials, including Janet Yellen, repeated the intent to raise rates in 2015, with the December 16th decision circled on everyone’s calendars.

Following the weak NFP and disappointing retail sales, chances seem lower, but also Federal Reserve officials are now  beginning to warm up to delaying a rate hike once again. Here are some recent developments:

  1. The hawk has doubts: Jefferey Lacker, the only member that voted for raising the rates in September, said he hasn’t made a decision for October. While other comments such as disregarding the retail sales report, seeing a strong job market and confidence on inflation seem hawkish, if he is unsure, who is?
  2. Regulation expert seems worried: Daniel Tarullo, which usually focuses on regulation and rarely on monetary policy, spoke out against a hike this year.
  3. New dovish voice, Lael Brainard: She does not speak too much about monetary policy, but when she did now, her message was quite clear – more patience in raising the rates. As a member of the board in Washington, Brainard has a permanent vote.
  4. Centrist not committed to 2015: Stanley Fischer, the Vice Chair who also has a permanent vote, expressed his desire to raise rates in 2015. Well, this centrist still talked about it before the retail sales report, but he softened his rhetoric by saying this is an “expectation” and not a commitment. Maybe the expectations have fallen since.
  5. Chinese warning: The world’s second largest economy is slowing down and it may feel the effect of a rate hike.  Lou Jiwei  explained that the US should assume its global responsibilities, thus not raising the rates. While the Fed officially focuses on the US economy,  we are living in a global world.
  6. IMF warning: The International Monetary Fund hasn’t had a great success in Greece, but it’s voice is heard all  and even listened to at times. The  organization led by Lagarde described a catastrophe if central banks will withdraw the monetary medicine too soon.
  7. Bond markets move the hike to April: The CME  FedWatch tool  has already showed an implied probability of around 65% against a move in December and a chance of a hike only in March 2016. A move has been pushed further into the future, with 73% against a hike in December and less than 50% for a hike in March. Only April, a meeting without a press conference, sees a bit over 50%.

So, will the Fed hike only in June 2016? They were relieved of their own forward guidance already in June 2015. If the world is going into a slowdown and the US into a recession,  raising the rates is off the cards for many years.

What do you think?

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The Federal Reserve building in Washington DC superimposed on a twenty dollar bill and a grunge texture background
The Federal Reserve building in Washington DC superimposed on a twenty dollar bill and a grunge texture background