From the FXWW Chatroom – The Fed wants to hike rates. Not on Thursday as that would catch the market on the back foot. But principally it increasingly wants to convince the market that higher rates are appropriate. There is no other explanation why the US central bankers are so determined to
move attention away from low inflation expectations. Inflation expectations in a survey on
consumer expectations published by the New York Fed yesterday also pointed downwards,
although that does not become clear on the website due to the way the data was represented1
. The Fed knows that like a bad sky diver it has missed the best moment to jump. The
majority of analysts agree that the current economic environment has not justified zero rate
levels for some time now. However, if during the past six years circumstances were never
sufficiently good to hike rates when will they ever be?
Companies and consumers are unlikely to put pressure on the Fed to hike rates any time
soon. A step of this nature is unpopular. And in the end central bankers are only human too.
One thing is clear: the better an economic environment the more likely it is that a rate hike
will be acceptable. That is what the Fed is hoping for. There is a good reason why it underlines
its data dependence. Today’s data on retail sales and industrial production in August is
likely to confirm again that the Fed will not yet hike rates on Thursday. Due to extraordinary
effects such as a strong previous month and a decline of petrol prices the data is likely to be
moderate. As a result USD exchange rates will continue to be dominated by strategic positioning.
[Commerzbank]