The US Fed Seeing 4 More Rate Hikes In 2016

The US Fed Seeing 4 More Rate Hikes In 2016

Up until 15 December,  the day before the Fed hiked its rate rise, I thought the central bank might surprise participants by not hiking to avoid harming the fragile US economy and financial markets.

The historic rate move on 16 December  “was very, very stupid,” one economist said.

Some other Wall Street economists opined that Fed Chairwoman Janet Yellen and voting members of the FOMC will raise rates at least twice in Y 2016, about the same as what futures contracts are predicting 1st in March. The Fed currently sees 4 hikes, based on its latest forecasts.

I believe that the Fed will have to backtrack and to begin cutting rates, similar to what happened with the ECB in Y 2011 as it was dealing with the Eurozone debt crisis.

Recall that rather than cutting rates to help the Eurozone economy, the ECB, led by then president Jean-Claude Trichet, raised rates 2X that year, which later proved to be a mistake that some analysts blamed for prolonging the crisis in the EU.

Now with Mario Draghi at the wheel, the ECB’s Key policy rates are in negative territory and the bank has adopted QE to combat deflation.

Despite the slowdown in US domestic manufacturing on the back of sluggish global demand and modest growth in consumer spending, the Fed may raise again in March or April, as it has set the bar fairly low to hike rates again.

The Big Q: Will the economic data allow for it to happen?

The Big A: I do not know.

Thursday, the US major market indexes finished at: DJIA -50.44 at 17552.17, NAS Comp +2.56 at 5048.49, S&P 500 -3.30 at 2060.99

Volume: Trade was light on this shortened session with about 400-M/shares on the NYSE.

  • NAS Comp +6.6% YTD
  • S&P 500 +0.1% YTD
  • DJIA -1.5% YTD
  • Russell 2000 -4.3% YTD

Have a Happy Christmas.

Paul Ebeling

West Brook Radio

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