A Rate Hike This Year?

   Schwaben Blog

 

September 18, 2015

 

Weekly Statistics:

  Today Week Ago Year Ago
  18-Sep-15 11-Sep-15 18-Sep-14
       
S&P TSX 13,646 13,478 15,265
S&P 500 1,958 1,961  2,011
DJIA 16,385 16,431 17,265
OIL $44.92 $44.79  $89.75
USD vs CAD 0.7604 0.7544 0.9051
Gold $1,138 $1,106  $1,232

 

The latest Federal Open Market Committee (FOMC) meeting concluded on September 16 and during the meeting the committee voted 9-to-1  for keeping the interest rates steady. The Federal Reserve chairwoman said that the Fed considered hiking interest rates on Thursday but because of the increased uncertainties abroad and the slightly softer expected path for inflation, the committee judged that it is appropriate to wait for more evidence. Although the US economy is growing at an impressive rate but due to significant correction in oil prices and appreciation of dollar, the inflation is much lower than the Fed’s target rate of 2 percent. Even the core inflation rate, which strips out the volatile items like energy, is still below 2 percent at 1.8 percent. There are two more FOMC meetings scheduled for this year in October and December. As there is no press briefing planned for the October meeting, so analysts and economists are pointing towards a rate hike in December. According to CME FedWatch tool, the probability of a rate hike in October is only 16% whereas in December the probability is 42 percent. The major indices in US and Canada are already down more than 7 percent this year and a rate hike at this time will only make the losses worse. I would still believe that a rate hike this year does not look imminent and the Fed should wait for inflation to settle around their target, otherwise the US economy may run into deflation.united-states-inflation-cpi

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