Fixed Income Perspectives – ‘Rate Hike in December? Let the Speculation Begin’

31 Oct Fixed Income Perspectives – ‘Rate Hike in December? Let the Speculation Begin’

Voya Investment Management – Fixed Income Perspectives – October 2016

Speculation about a December rate hike began almost immediately following the Federal Reserve’s decision in September to keep rates unchanged. The consensus opinion that the Fed will hike in December received additional support following the release of the FOMC minutes, which confirmed that the September vote was a closer call than investors originally thought.

However, roadblocks to a December hike do in fact exist. While the Fed is eager to make a move, the subdued September jobs report not only eliminated the likelihood of a November rate hike, but also introduced a thread of uncertainty about December. There are three conditions that have deteriorated since the September Fed meeting: The U.S. dollar has strengthened, resulting in downward price pressure on imports; GDP forecasts have been downgraded; and the unemployment rate has increased.

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