FOMC: Market expectations and possible scenarios - Investec

FXStreet (Delhi) – Research Team at Investec, note that with the FOMC interest rate decision looming today at 19:00 GMT, markets could see the first US Interest rate rise in 9 years.

Key Quotes

“A first hike is fully priced in by December 2015 – note the next hike is not fully priced in until 1 year later. A hike may see the market scramble to catch up to the much more hawkish Fed path that would lead to US Dollar strength.”

“Before the Fed ‘1 week blackout’ on comments, the more center ground members (not overly hawks or doves) were backing away from a September hike as Chinese slowdown was affecting global markets, this has calmed now so markets are questioning whether a hike is back on the cards.”

“One factor that could put the Fed off a September hike – the Fed are unlikely to want to shock markets causing additional US Dollar strength. One would expect a hike to be very clearly signaled for the first raise in 9 years, so the market can price it in and reduce sharp on the day volatility.”

“The Fed usually move rates when at least 50-70% in priced in.”

“If the Fed do hike rates, Fed Chair Yellen’s accompanying press conference could give a dovish rhetoric, backing away from much further action to cool markets off.”

“Long term Unemployment is now at the Fed’s target range. Big tick for a hike.”