With the Fed Chair Yellen set to speak today, Jane Foley, Senior FX Strategist at Rabobank, notes that the markets will be keenly eyeing her comments to gain clarity over the rate hike view.
What will Yellen do?
Foley says that after the Fed rate decision the uncertainty in the market has only increased and in today’s speech from Yellen the markets will keep a close ear on any comments relating to rates and the global macro. She sees possible comments on ‘most FOMC members tilting towards a rate hike’ and ‘stress or china’ to be the decisive factor for the market movements with respect to rate expectations ahead.
Yellen’s speech: Reference to China will spook the markets
Foley believes that if Yellen talks more about the Chinese market crisis, markets might move towards the view that a rate hike in 2015 would be unlikely, thus any reference on volatility would bode bad for the rate outlook.
Today’s speech critical for the Fed chair
Foley mentions that Yellen has to communicate now and today’s speech will be critical, while Zak Mir adds that the only way for Yellen to dig her outside of the hole is by raising rates this year. Mir further adds that it’s not the Fed’s job to look out of the window more than the US data.
How do corporations plan for 2016?
Foley notes that the uncertainty into the Fed rate hike could create volatility and lead to disinvestment in the US market.
On the Fed hike, she believes that the inflation outlook in the US made it difficult for the Fed to raise rates so soon, but in terms of employment data, a different call could be made.
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