Over the weekend Stanley Fischer, the Federal Reserve Vice Chairman, hinted that a Fed Funds rate hike is still very much on the table this year, arguing that the US economy continues to grow in spite of the global uncertainties and was close to meeting the Fed’s own targets. In a speech in Colorado, to the Aspen Institute, he said 'Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes,' adding that the committee was upbeat on its economic targets.
Over the last few days several other members of the Fed committee have also signalled that they are moving closer to pulling the trigger on raising rates. William Dudley, the New York Fed President mentioned in an interview he gave earlier in the week that the committee was 'edging closer' the point where it would be appropriate to raise rates. In line with Dudley, Lockhart gave a speech stating that 'If my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year'.
However, not all of the committee are quite so bullish on the US economy. James Bullard, the former hawk, now turned dove sees little if any change in interest rates due to the fact that worker’s productivity isn't rising quickly enough. July’s decision by the Fed to leave rates unchanged was backed by a 9-1 vote. The only member who voted for an immediate rise in interest rates was Esther George, Kansas City Fed President.
So how does the market interpret the chances of any rate rise? At the beginning of last week the futures market priced in probabilities for a rise at 16% in September and 42% in December. After the FOMC minutes were released on Wednesday evening, September and December probabilities moved up slightly to 20% and 47%, respectively. This morning those probabilities have again slightly increased to 22% for September and just over 51% for December.
Lastly, well done to Team GB who finished second in the medal table at the Rio Olympics, their highest placing since 1908 (which was hosted in London). After the London Olympics, Team GB are the first athletes to increase the medal count after hosting the games and have now increased the medal count at five successive Games. After his decision 22 years ago to designate a percentage of profits from the National Lottery to sports funding, John Major should take a bow.