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Fed rate hike, knocking at the door – BBH

FXStreet (Delhi) – Research Team at BBH, suggests that the pendulum of market expectations has swung decidedly in favor of the long-awaited Fed hike next month.

Key Quotes

“A Reuters poll found 15 of the 17 primary dealers expect a hike at the December FOMC meeting, up from 12 after the September FOMC meeting. The median probability was assessed at 80%. The US-German two-year swap rate (interest rate differential) finished last week just shy of 118 bp, which is the largest US premium in more than nine years. The premium was near 80 bp as recently as mid-October.”

“The Reuters survey found that the consensus among primary dealers anticipate that Fed funds will be at 1.125% at the end of 2016. This is down 25 bp from the mid-September survey as if the Fed's failure to raise rates then is simply removed from the forecast rather than made up for later. Assuming that the Fed lifts off in December, this implies 100% confidence of three rates hikes next year and evenly divided on the prospects for the fourth hike.”

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