FED 2016 Rate Forecast

Our forecast for FED rate hikes in 2016 was 2 hikes for 2016.  We strongly doubted the then prevailing market view of 3 to 4 hikes.  It is now clear that the maximum number of hikes will be 2 at best.

Emerging markets and the key developed markets of Europe and Japan are still weak, thus the FED is not only looking at US data but also what is going on worldwide.

In addition, there are the November presidential elections in the United States.  Thus the FED is less likely to make any move before the elections.

The market had priced in a hike in June, but I believe market expectations have decreased on the probability of a hike at that time.  I don’t think it will happen in June.

The catalyst for this rate rise will be higher oil prices which should push inflation back to slightly normal levels and this will be the reason the FED will need to push rates higher.

I thus expect only 1 additional rate hike for 2016 and that will be after the US Election in November.  Thus 0.25 basis point move up in December.

And contrary to current views that the market will suffer, I think it will go up since this will show that the US economy is expanding and that there is growth.

Our forecast for FED rate hikes in 2016 was 2 hikes for 2016.  We strongly doubted the then prevailing market view of 3 to 4 hikes.  It is now clear that the maximum number of hikes will be 2 at best.

Emerging markets and the key developed markets of Europe and Japan are still weak, thus the FED is not only