Despite the upbeat rhetoric from the Fed, Morgan Stanley analysts do not expect the Fed to hike at all this year as the USA economy is expected to slow down from here.
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In an email to clients this morning, Alec Phillips, U.S. Political Economist in Global Investment Research at Goldman Sachs, offered a review of monetary actions by the Federal Reserve ahead of important elections.
What does a former reality-TV star who lives in a Vegas-style imitation-Louis-XIV Manhattan penthouse know what is and isn’t real in this world?
The U.S. unemployment rate remained unmoved at 4.9 percent this September, confounding anticipations for a downtick to 4.8 percent.
The big disconnect appears to be one of scope: While many are expecting the Fed to stay loose and passive in response to global risk factors and an unconvincing U.S. economic recovery, others look at rates relative to historical levels to denote that we’re (the entire world) still very much employing “emergency-like” policy. Turnover totaled US$913 million during the trading session.
The U.S. Institute of Supply Management reported a day earlier that the ISM non-manufacturing Purchasing Managers’ Index for August came in at 51.4, the lowest level since early 2010.
Gold fell for the third day in a row on Friday, under pressure from a stronger USA dollar and increasing concerns that the Federal Reserve may raise interest rates sooner than expected.
– The US Dollar continues to drive lower as expectations for near-term rate hikes out of the United States dwindle lower. Commodities analyst at INTL FCStone Edward Meir said the slower-than-expected data on Tuesday reduced the odds of a rate hike in September to 15 percent probability with a December move still around the 50-55 percent mark.
Raising U.S. interest rates makes sense now that the economy is at full employment and “within sight” of the central bank’s 2%-inflation goal, a top Federal Reserve official said on Tuesday.
As the Fed Reserve has repeatedly emphasized the correlation between the USA job market and the path of interest rates, this underwhelming Non-Farm Payrolls (NFP) report destabilized expectations of a Fed rate hike happening in the near future. A Reuters poll of economists last week also pointed to December-after the US presidential election-as the most likely timing for a hike.
So here we stand, with equity markets around the globe soaring to near record highs and the outside stimuli for a rate hike looking more positive than ever.
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“For the rates market to adjust accordingly, it may require the Fed to change its language, which has not happened yet as Williams illustrated overnight”, Morgan Stanley strategists said in note, adding once the Fed adjusts its communication, the dollar would fall against the euro and the yen at a faster pace.
