Our forecast for the next US Fed rate rise has been revised to account for the recent macro data. The data has come in weaker than it should to warrant a rate rise in September. Thus, nothing will occur in the September meeting.
In addition, with the US Election in November it was probably not going to happen anyways even if the data were stronger. The key question will now be will rates rise during the December meeting.
My initial view is that they might raise 0.25 in December, but I believe there is a good chance that they hold off till 2017. There are several reasons for this view listed below:
- Macro Data was weaker than expected. Non-farm payrolls rose 151,000 in August. This is 30,000 less than the median analyst forecast of 180,000.
- Inflation is below target.
- Wage growth is going negative.
- The ISM report shows a contracting US manufacturing sector since the index was less than 50.
In addition, even though the global financial risks have lessened recently there are some risks still out there. Thus, by delaying a rate rise it might provide more time for these situations to stabilize a bit.
Some of these risks are: Italian Banking Sector, China, Sovereign Debt, The Syrian Migration Crisis, Brexit and low Oil Prices. I believe that it would be a benefit to let some of these things improve or become clearer. Raising rates sooner could spark a problem.
Thus, our outlook is for rates to increase in early 2017. However, domestic pressure could move the Fed to increase in December.