FED – Diminished Chance of 2015 Rate Hike
The expected September rate hike did not happen as we predicted in August. This was due mostly to turmoil in the financial markets as a result of the Chinese slowdown. In addition, the inflation numbers were weak.
Going forward, we do not expect the FED to raise rates during the late October meeting and to also hold off in December.
There are still big risks globally and inflation is very low. Energy prices are very low and this has helped contain inflation figures.
A known but big risk is emerging market corporate debt. However, some emerging market central bank leaders, at the IMF Lima, Peru meeting, have stated they would prefer the FED to get on with the rate increase due to all the uncertainty.
Even though there has been some preparation in emerging markets for the eventual FED hike, I think they are underestimating the risks.
Therefore, I reiterate that the FED will certainly not hike in October and there much reduced chance that they will hike in December 2015.