Fed rate hike odds on by year end - ANZ

FXStreet (Bali) - Following Fed’s Fischer comments at Jackson Hole, Cameron Bagrie, Chief Economist at ANZ, notes that a rate hike in September still looks odds on by year end.

Key Quotes

"Central bankers often go out of their way to be balanced so it was of little surprise to see Fed’s Fischer at Jackson Hole, Wyoming (the Kansas City Fed’s annual retreat), come out with the following:"

1. There were “good reasons to believe US inflation will rise”

2. The “Fed should not wait until inflation is back to 2 percent to begin tightening”; [take 1 and 2 literally and it doesn’t sound like a central bank wanting to delay at all].

3. “With inflation low, we can probably remove accommodation at a gradual pace”

4. “we are following developments in the Chinese economy … even more closely than usual”.

"That combination is stating the obvious; a hike still looks odds on by year end. China needs watching but developments as yet don’t warrant changing tack."

"However, it was the unity across the Fed, ECB and BoE that we find notable with all three seeing inflation rising."

"Of course any assessment is subject to a set of economic assumptions, so let’s call it cautious confidence."

"But the hymnbook lyrics were pretty clear about inflation."

"Unfortunately this is also where things still head into the unknown, and indeed as the BoE’s Carney noted, “there are profound secular and cyclical disinflationary forces at work….”, so life is not easy."

"But plan ‘A’ certainly looks to be one of getting some runs (hikes) on the board. That means some inevitable repricing of the cost of global capital."

"This is where markets (equities etc) need to transition from liquidity to growth and where the battle-royale is set to play out."