Fed: Rate hike coming today – BBH

FXStreet (Delhi) – Research Team at BBH, is anticipating a rate hike in today’s Fed meet with the guidance from the Fed's leadership, and evolving economic data which led them to that conclusion.

Key Quotes

“We recognize that the economic uncertainty has risen, and financial conditions have deteriorated, by some measures, over the past four to six weeks. Developments in China seem to be at the center of the concern. On one hand, the pace of Chinese growth has become more suspect, and the knock-on effects may be more serious than recognized when one confines the inquiry to the bilateral Sino-American ties. Many other US trading partners may also be adversely impacted.”

“The Federal Reserve has three mandates: full employment, price stability, and financial market stability. In effect, the idea is that even if the first is well on the way to being met, and from the Fed's view that is the key to the second goal, events in China, may have jeopardized the third, financial stability.”

“China is taking monetary and fiscal measures to support the world's second-largest economy. House prices have stabilized and have turned slightly higher in recent months. The global capital markets have stabilized. The "fear indicator", the VIX, which had spiked to over 50% in late August, is now just above 21%. Its five-year average is about 20.2%. Indeed, some investors argue that the financial stability considerations favor a rate hike.”

“If the Fed hikes the Fed funds target range, we expect Yellen's press conference to emphasize the gradual pace it anticipates. If the Fed does not hike rates today, Yellen's press conference may take on a somewhat more hawkish bent.”