With the US economic outlook gradually getting back on track, following a first quarter setback, rate hikes are knocking on the door…
Now, despite the Fed Chair has repeatedly alluded to at least a couple of interest rate increases before year end, Futures traders insist on pricing in a very low probability of an early rise, as hinted by the Fed.
The question now becomes, who will be right? “Mr. Market” or “Mrs. Yellen” ?
One thing worth noting is also that what will eventually follow is not necessarily, as many believe, a “tightening” of monetary policy, per se. In fact, regardless of the timing, if there is thing that was stressed by Janet Yelle is that the pace of subsequent rates rises would be “gradual”. With that in mind, this transition phase should rather be considered as the process of “normalising” monetary policy.
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(Yes, this is indeed the term we coined for our loyal readers… Oh and yes, we are Star Wars fans).