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What’s beyond a Fed’s lift-off in December? – Danske Bank

FXStreet (Edinburgh) - Allan von Mehren, Chief Analyst at Danske Bank, assessed the potential scenario following a rate hike by the Fed in the next month.

Key Quotes

“The more hawkish statements from the doves support the view among analysts and investors that a hike in December is very likely”.

“Hence, focus has moved to the period after the first hike. In our view, the new battleground for the FOMC members will be how the Fed should proceed once it has begun the new tightening cycle”.

“As we argued, we look for four additional hikes in 2016, i.e. in total five hikes from now until year-end 2016”.

“This corresponds to a hike every other meeting and is in line with the median Fed projection from the September meeting. This implies that the Fed funds target range will be 1.25%-1.50% at the end of next year”.

“We base this on the increasing wage inflation, which means that the underlying inflation pressure in the US is increasing”.

“The doves will probably argue that a slower tightening cycle is needed as the US and the global economy have been through a very severe crisis and so that the Fed can monitor the impact of the tightening on the real economy. If the Fed hikes in December as expected, focus will be on the updated projections for the Feds funds rate”.

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