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US: Fed a “done deal” in December – Nomura

FXStreet (Delhi) – Research Team at Nomura, suggests that when it comes to expectations around the timing of the Fed’s first rake hike in over nine years, it certainly has become a “done deal” for December in our clients’ view, with 92% of the sample calling for it.

Key Quotes

“The timing of the second hike is then expected to be either in March (53%) or perhaps June (32%), with only 14% expecting Q3 2016 or later.

With the timing of lift-off all but set, discussion within the FOMC minutes appears to have moved to the pace of adjustment. The October FOMC minutes provided only qualitative guidance on the expected pace of rate adjustment, as it stated that FOMC participants “generally agreed” that it would probably be appropriate to remove policy accommodation “gradually”.

On the topic of the pace of hikes, we thought it was best to ask our clients where they saw the Fed funds target rate by end-2016 and end-2017. With 0.75% for end 2016 and 1.25% for end 2017 the most popular choices – or 0.86% and 1.4% respectively on a weighted average basis – the theme of “gradual rate hikes” was evident.

Considering the large majority of clients expect a hike in December, this would indicate that they expect a pace of around 1-2 hikes in 2016 followed by another 2 hikes in 2017.

We expect three rate hikes between now and the end of 2016 (up to a fed funds target of 0.75-1.00%) and an additional three hikes in 2017 to 1.50-1.75%.”

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