Fed rate hike is not priced in by the markets – SocGen

Research Team at Societe Generale, notes that the last week, the minutes of the July meeting showed that the FOMC remains divided on the timing of the next rate hike and their economists still expect no tightening this year.

Key Quotes

“But, following the slightly more hawkish FOMC statement in July and recent warnings from Fed officials (Dudley, Lockhart), a hike by end-2016 cannot be ruled out just yet.

With fed funds futures putting the probability of a hike in 2016 at below 50%, the risks are skewed towards some hawkish repricing of hike expectations going into the autumn.

There is thus a significant level of event risk ahead, with Yellen’s speech at Jackson Hole on 26 August and the 21 September FOMC meeting (with a Summary of Economic Projections). Markets will focus on the Fed’s language on the balance of risks to determine if December could be a “live” meeting.

Our Rates strategists recommend strategies to hedge the Fed risk in “Trading the next ten risk events”.”