Fed Speeches Key as Traders Obsess Over Rate Hike

A bank holiday in the U.S. and a lack of economic data on Monday is likely to result in a slightly quieter start to the week in the financial markets, although there are a number of Federal Reserve officials due to speak today which, given the obsession with the central bank’s first rate hike, should attract plenty of interest.

The Fed has shown a strong willingness to raise interest rates this year but back in September its plan was scuppered by an unusual amount of volatility and panic in the markets. Since then, conditions have calmed somewhat which may present the Fed with the opportunity to hike in December, although there is plenty that could go wrong between now and then.

One of the biggest problems it faces, assuming its intentions are still to hike, is relaying the message to the markets because until now, it has failed miserably. The market is currently pricing less-than a 10% chance of a hike in October and below a 40% chance by December. If intentions are still to hike, the Fed must communicate this much better and scheduled speeches from officials offer the perfect opportunity.

Fed Chair Janet Yellen has consistently remained on message claiming that a hike this year is likely but that is clearly not enough. She has also laid out what appears to be a number of ready-made excuses to be used in the event that the Fed opts to wait a little longer, which the markets have read as a sign of weakness. The money is currently on these being used and only the Fed can change that.

The start of the week may be a little quieter but it should pick up with plenty of important economic data being released over the coming days and corporate earnings season getting properly underway. Sentiment is pretty low right now which is why we’re back in a position whereby markets are boosted by the prospect of no rate hike, despite the fact that this suggests that the economy is therefore weaker than previously thought. A disappointing earnings season will not help matters and pile more pressure on the Fed to hold off on hiking rates until next year.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.