Saturday October 31, 2015 - 09:13:23 GMT
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Fed Lays Groundwork For December Lift-Off
John M. Bland
December 16 Rate Hike?
The last thing the Fed wants is to the focus of just all activity in the financial markets. This is something they have brought upon themselves by sending mixed signals to the market and by not following through on the signals they have transmitted. The confusing forward guidance posture is being interpreted as indecisiveness and has hurt its credibility. I am certain they are aware of this problem and believe they are now attempting to set things straight. The policy statement released on Wednesday send a strong signal that a rate hike is being considered for the December 16 meeting. While reiterating that the decision is data-dependent, they gave themselves an out saying, "In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected-- toward its objectives of maximum employment and 2 percent inflation." In short, they have a lot of leeway in determining how to interpret data into that meeting. Absent a disastrous run of data between now and December 16, the Fed will be hiking rates at that time. This expectation should be USD positive.
Forex Market Developments
The various financial markets took the announcement by the Fed in the way we believe it was intended. Importantly, the yield on the 10-yr note rose from around 2.00% early in the week into range of 2.20%. If speculation about a December lift-off persists, I believe we could rise to close to 2.30% by December. The USD also has taken the news positively, as it should have. Improving interest rate spreads are typically constructive for a currency.
The upcoming week is an active period for major economic data.
-- Monday November 2, Global PMIs,
-- Tuesday November 3, JP- Holiday, GB- Construction PMI, API Crude
-- Wednesday November 4, Global Service PMIs, AU- RBA Decision, US- Trade, ADP Jobs, Weekly Crude
-- Thursday November 5, GB- BOE Decision, US- Productivity
-- Friday November 6, GB- Output, Trade, CA/US- Employment
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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