Fed: 25bp rate hike is assured next week - Westpac

Richard Franulovich, Research Analyst at Westpac, assures that a +25bp Fed hike is assured next week and the median for 3 hikes in ‘17 unlikely to change: a majority 4 of 6 members at the median would need to turn more hawkish.

Key Quotes

“That said the distribution likely shifts hawkishly. As of Dec, 6 saw fewer than 3 hikes in 2017 while 5 saw more. Upbeat Fedspeak suggests that net balance around the median tips in favour of >3 hikes. Yellen should stress gradualism and “moderate” growth.”

“USD yield support has come a long way but it’s still not spent: markets have mostly just front-loaded hikes, +65bp priced by end-2017, up just 2bp over the week and still shy of the 3 hike median.”

“USD should test 104 highs near term but suspect it falters in summer when risks are high that tax reform could run afoul of challenging political realities: even if Senate filibuster risks can be dodged via the 2018 reconciliation bill (needing just a simple majority vote) great swathes of the Republican party remain lukewarm on infrastructure, border adjusted taxation and funding spending plans by gutting government agencies.”