Home USD: Fed’s Hike Fully In The Price – Danske
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USD: Fed’s Hike Fully In The Price – Danske

In our FED preview, we laid out three scenarios, only one USD positive. Here is the view from Danske:

Here is their view, courtesy of eFXnews:

In line with consensus, we expect the Fed to raise the Fed funds target range 25bp to 0.50%-0.75% from the current 0.25%-0.50% at the FOMC meeting this week, as economic data have improved, the labour market is tightening and financial markets are calm.  Markets have fully priced in such a rise.

Since everyone expects a Fed rate rise, the most interesting question is how many hikes to expect next year from the Fed.  We expect the median ‘dots’ to stay unchanged, signalling two hikes in 2017 and three in 2018, as many FOMC members have said that they want to analyse Trump’s actual economic plans before taking action. Also we think the FOMC members will be reluctant to raise the ‘dots’ prematurely, as they had to revise them down several times this year.

For the same reason, we do not expect major changes to the growth, core inflation or unemployment forecasts  (the markets also tend to focus less on them). That said, one thing to look for is whether the Fed revises down its NAIRU estimate from the current 4.8%, as the unemployment rate is currently 4.6% but wage growth is still subdued (although it is trending up).

We see a chance that the longer-run median ‘dot’ will be revised down to 2.75% from 2.88% currently, as it needs only one FOMC member currently indicating an end rate of 3.00% to revise it down for the longer-run median ‘dot’ to be revised down as well.

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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.