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Does Fed has the courage to raise rates?

Today’s data released by the Labor Department showed that unemployment in US is lowest since April 2008. We should assume that those jobs numbers along with other economic data is showing us that the thing are improving and it’s finally the time for Fed to raise rates. Right? Well, not so fast.

While there’s a big chance that December hike will happen, there’s an uncertainty of what will happen in 2017. While traders in the fed funds futures market, used to place bets on the timing of a rate rise, show a 95% chance of an increase in December, up from 93% on Thursday (Source: CME Group), a lot of analysts in the industry feel that we should be watching for the 2017 rate-hikes pace, which are currently under the question.

Aberdeen Asset Management's Luke Bartholomew said this morning:

“For a long time markets have thought rates would rise very gradually," he wrote. "But Trump’s victory has tested that conclusion. The Fed will want to offset any significant fiscal stimulus that Trump manages to enact. There’s a good chance that Trump might view that as an attempt to undermine his plan given how hostile he’s been towards the central bank. That could lead to a showdown between president and central bank which financial markets would not take kindly.”

Shaun Osborne, chief foreign-exchange strategist at Scotiabank, said:

”The Fed is locked in at this point for a December increase,” said Mr. Osborne. “But the argument for more rate increases next year “would have been sounder if we’d seen a pickup in hourly earnings”

2017 won’t be an easy year for Janet Yellen and considering the pressure that she might get from the new administration, the picture will get much more murkier. And while December hike is almost a certainty, nobody knows what to expect next.

Does Fed has the courage to raise rates?

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