Fed hike pushed out to Sept. 2017 - Rabobank

Michael Every, Head of Financial Markets Reseach at Rabobank, notes that the Fed hike has been pushed out to Sept. 2017 from March,’ as Bloomberg puts it.

Key Quotes

“That, of course, was in response to a US Q2 GDP print of just 1.2% q-o-q annualized vs. 2.5% expected, and with downward revisions to the last few quarters’ back data: Q1 was trimmed from 1.1% to 0.8%, for example.

Overall, using y-o-y GDP to smooth out the revisions one can see that from Q2-2014 to Q2-2015 the US economy was growing at an average of 2.8% (in line with the 2001-07 trend); in Q3 2015 that dropped to 2.2%; in Q4 2015, when the Fed hiked, it had dropped to 1.9%; in Q1 this year it was 1.6%; and in the quarter just finished it was only 1.2%.

Therefore momentum appears to have been ebbing even as the Fed decided it was the right time to hike rates for the first time, and GDP now be arguing it would be wrong to hike for a second time for quite some time: or, in short, the Fed may once again have got it wrong. Certainly, the Fed Funds futures market strip thinks so: it now has only a 35.7% chance of a hike by December this year, only rising to 50.8% by September 2017 – still only slightly better than 50-50.”