Fed: Market is only pricing in a 20% chance of a hike - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that after last week’s deluge of disappointing US data, the market is only pricing in a 20% chance of a hike.

Key Quotes 

“Yet given that jobs growth appears to be strong and unemployment low, and that core CPI on Friday was 2.3% y-o-y, the Fed is arguably meeting both its targets at once, so why not hike? Of course, this timid and equity-centric Fed are extremely unlikely to do that.

Our Fed whisperer Philip Marey still expects December to be the most likely date this year, if we get a hike at all. Nonetheless, it will be equally interesting to see how the Fed fills in its own Blank: “We are talking up rate hikes but not actually hiking because of…’BLANK’.”

Will it be “the economy”? That would be fair given the balance of last week’s data – but if so, how to explain that the employment situation is apparently so good and core inflation so high, and that it is hikes, not cuts, still be promised? And/or will it be “political risk”?”