Is a dovish November Fed meeting already priced in?


The US Presidential Elections date is approaching, and the markets are hoping for the clear rate hike signal from the November Fed meeting. What to expect from Fed meeting next week?

26 October, AtoZForex The Federal Reserve (Fed) officials have been hinting at the probability that the interest rate raise can take place this December.

November Fed meeting already priced in?

A number of market players hope that Fed will be direct and transparent in its statement next Wednesday, just like it was right before the rate hike last December. Others believe that Fed authorities won’t change the status, as the US election is approaching. The Chief financial economist at Jefferies, Ward McCarthy, has stated:

“That’s what they did a year ago. It’s possible they could do that. I think the market already thinks that, but I think the Fed made it clear and that’s what they expect to happen. I think the market would react somewhat, but at the same time, prior history suggests even with that type of pledge, some skepticism is warranted.”

Another expert opinion comes from the Head of the US rates strategy at BMO, Ian Lyngen, as he believes that the Fed upcoming statement is about to include the phrase, which will indicate a firmer probability of the rate hike in December.

Currently, the expectations for the December rate hike are recorded at 74 percent, with the odds for the rate hike in November are at 17 percent.

Too much turmoil for the rate hike?

Mr. Lyngen has further stated in regards to the upcoming Fed Wednesday statement:

“What they did in 2015 really sets up next week’s meeting to be a more potentially tradable event than the normal kind of sleepy event that we might have otherwise expected it to be. When you have an event where there’s a large enough divergence of opinion, the price action surrounding the event can be decisive. “

Yet, the rate hike in December could be possibly opposed on the Federal Open Market Committee (FOMC), as at its last meeting in September, three Fed officials dissented. CEO of DS Economics, Diane Swonk, has commented:

“If they do put it in, I think it would reduce the number of dissents. I don’t think Janet Yellen minds having a pretty big showdown, even with her own vice chairman.”

She believes that there is too much turmoil in the markets for the Fed to raise the rates.

Chris Rupkey, the Chief financial economist at MUFG Union Bank is also anticipating the Federal Reserve to show signal for the December time frame, adding:

“I think they would say ‘next meeting.’ When you have somebody like Evans from Chicago saying he’s OK with December, it sounds pretty much like it’s a done deal, save the stock market falling a thousand points.”

He further stated that he expects the market to be looking for any signal on how the central bank wants to act in the future on interest rate raises.

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