December FOMC rate hike on the cards.

With the Federal Reserve’s December meeting of the 15/16th fast approaching, there’s been a lot of speculation as to the possibility of America seeing interest rates rise above 0.25% for the first time since the crash.

The fed has been warming considerably to a December hike recently, citing high employment levels, jobless levels down to 5.0%, the lowest since April 2008, and slow consistent growth as clear indicators that 0.25 barrier may cede before the year is out. The Wall Street Journal reports that futures markets are pricing in a 75% probability of a rate hike in December, the chance of which has since increased after recent hawkish comments from Yellen. Whilst other Fed members have also been alluding that a hike is certainly on the cards.

Fed’s Lockhart said today (December 2nd) that the US economy is closing in on full employment, adding that the meeting on the 16th could be “historic”. "I say 'historic' because I expect the Committee to consider, as it has in recent meetings, the first increase in the policy interest rate in nearly 10 years. And it's been seven years since the federal funds rate was first set at effectively zero.”

Yellen herself added that a failure to hike in December could result in tightening further down the line in order to avoid overshooting the Fed’s long-term 2% inflation target.

Without significant changes in the American outlook in the next couple of weeks, it’s likely the conversation in December will be less about whether or not to increase rates and more about the pace at which to do so. Fed’s Evan expressed concern over the prospect of rates broaching 1% before 2016 is out; however he was quick to reassure us that “the economy is strong enough so that very gradual increases could still be quite consistent with continued strong economic growth and rising inflation.”


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Reuters: Business News

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