Following hawkish Fed Stanley Fisher comments at Jackson Hole, market have increased expectations for September Fed rate hike. However, market participants are missing one crucial think. Here is why there will be no Fed rate hike in September.
30 August, AtoZForex – Fed Janet Yellen gave us a relatively brief description of her views at Jackson Hole symposium on the “Current Economic Situation and Outlook”. We had only few surprises in her speech.
Based on her economic outlook she expects that “gradual” fed funds rate increases will be “appropriate” over time. She added “I believe the case for an increase in the federal funds rate has strengthened in recent months.”
No Fed rate hike in September
However, Japanese financial holding company Nomura still thinks that “the most likely outcome is that the next hike will come in December.” Since recent data out of US has been mixed and activity only picked up in June and July.
More importantly, AtoZForex Group Strategy Director Yagub Rahimov doesn’t expect Fed rate hike in September because of US presidential elections on 8th of November. He commented the following:
“What most of the analysts forget is the US presidential elections. Until the elections are concluded, we should not expect to see any drastic action from the Fed. The current administration has already shifted the economic stability, it is now up to the next administration to bring on the economic development, hopefully. Thus, the earliest Fed rate hike expectation should be in December, right after the presidential elections.”
August labour data expectations into September FOMC
Nomura expects an increase of 200k in US Nonfarm payrolls for August and a 0.1% decline to 4.8% in the unemployment rate. Despite upbeat August NFP expectations, consumer price inflation has slowed somewhat. In addition, other early data for the month of August also point to a slowdown relative to activity in June and July. After this, we are not going to have a lot of additional data between now and the September FOMC meeting.
In this context, Nomura expects no Fed rate hike in September, concluding that “we think the probability that the FOMC will hike at its next meeting is about 25%, and the probability that the next hike will come in December is about 50%.”
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