Fed Signals Third Rate Hike

Yesterday’s markets

2nd November 2017

  • GBP - Manufacturing PMI: 56.3
  • USD - ADP Non-Farm Employment Change: 235K
  • USD - ISM Manufacturing PMI: 58.7

The Federal Reserve signalled they are still on track for a third rate hike in December in their statement released last night. They remain confident that inflation will reach the targeted 2 percent, despite currently reading 1.3 percent. The Fed also have confidence that the hurricanes seen in August will not have a long-term impact on the economic. The Dollar strengthened overnight. However, the gains were mostly reversed as the market wait for the highly anticipated Fed Chair announcement.  

Today’s markets

1st November 2017

  • GBP - BOE Inflation Report
  • GBP - Monetary Policy Summary
  • GBP - BOE Gov Carney Speaks

The Bank of England are set to raise interest rates today for the first time in over a decade, after slashing interest rates to an extremely low 0.25%, after the Brexit vote in case of a recession. There is now less of a need for the emergency level and the BOE are looking at raising rates to help bring the inflation back on target. Although the markets are convinced the BOE will be raising rates today, there is concern that they have teased the markets before with talks of a hike, only to not follow through.  It is likely the votes for a hike will be fragmented with the markets predicating 6-3. This will mean the markets will be looking to BoE Governor Mark Carney’s press conference for any hawkish tones to indicate that this rise is not going to be a one off.

Across the pond, US President Donald Trump, will be announcing his decision for the next Fed chair. Jerome Powell is still seen as the favourite, with Janet Yellen and John Taylor now predicted to be out of the running. Powell already sits on the Federal Reserve Board so the markets do not expect to see much disruption if he takes over as Chair. Trump also needs to appoint a Vice Chair, as Stanley Fischer stepped down from the position last month. The appointments for the roles will need to be approved by the Senate before anyone can take them up.