Economists and Market Differ on Fed Rate Hike Timing

Economists believe the Federal Reserve will raise interest rates at least once this year, but market participants are betting policymakers will stand pat once again after seeing them threaten to take away the punch bowl only to let the good times roll.

The market is nearly evenly split on the prospect of a rate hike by the end of this year, according to the CME’s FedWatch Tool. Nearly 54 percent of the market believes interest rates will remain in the current range of 25 to 50 basis points in December. Meanwhile, the odds of a September hike fell to 12 percent in the market’s view.

On Sunday, Fed Vice Chairman Stanley Fischer said the Fed was close to meeting its inflation and labor market targets. That followed statements from Fed officials last week that indicated the central bank had not ruled out a September rate hike, as well as the release of minutes from the Federal Open Market Committee’s July meeting that showed policymakers were split over a near-term increase.

“The market’s pricing in well below what any economist or strategist is pricing in,” UBS Deputy Chief U.S. Economist Drew Matus told CNBC’s “Squawk Box” on Monday.

Those experts generally agree the market is not listening to recent statements from Fed officials, he said. But the market is not putting stock in those pronouncements because they’ve been burned in the past, he added.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza