Investment Clock insights

Pinch of salt needed but Fed December hike still likely

Ian Kernohan

22 September 2016

The Fed has set out their stall for a December hike, while at the same time suggesting a shallower path for further hikes in 2017.  It is best to take the so called dot plot projection with a large pinch of salt, since it seems to change so frequently. Less than a year ago the Fed was projecting four hikes this year, and we haven’t had one yet.  While I still favour a hike this December, with three months to go, markets should be mindful that the current rate hiking cycle has already seen repeated interruptions from unexpected events. 

Once the November meeting is out of the way, the Fed needs to make it clear that it needs to see only modest progress on labour market momentum to justify a December hike, and then stick to that script. Otherwise, the market will over react to what could  be short-term volatility in the data. I wouldn’t be overly bullish on the dollar in the near term, until the US economic data confirms that a 14 December hike will actually take place.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice