December FOMC may turn the tide from downgrades to upgrades for hikes over the cycle - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the case for the next Fed’s rate hike on 14 December is essentially made, even a setback in the labor indicators is likely to be dismissed. 

Key Quotes

“However, there is scope for the market to push up the anticipated rate hikes next year.  The market currently has about one and a half further hikes priced into next year.  This does not include much risk that the Fed is forced to reassess its slow and gradual rates outlook to adjust to evidence that the labor market is already generating higher wages growth and moving into a steeper part of the Phillip’s curve sooner that it has forecast.”

“The Fed has spent most of this year downgrading its view of the economy over the medium term.  While inching closer to a second hike in the cycle, it has persistently lowered its view of potential growth and the long-run neutral policy rate; fearing a secular decline in productivity in the USA and globally.  These dovish tones contributed to a weaker USD through much of this year.  The December Fed meeting may be the first in which we see some increase in the Fed’s longer-run expectations.  If so, it could contribute to a more optimistic mood developing in the last month and propel the recovery in the USD.”