December could now see rate hike in US

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The US Federal Reserve will likely pull the trigger and hike interest rates in December after taking a pass last week, according to economists polled by Reuters who assigned a 60 per cent probability of it happening.

For months one of the most debated topics in global financial markets, the timing of the first rate hike in nearly a decade in the world’s largest economy has proven a tough call for forecasters and traders.

The outlook isn’t any clearer now, after Fed chair Janet Yellen held policy steady last week and added China and global financial markets as reasons for not moving.

“The window for a rate hike this year has narrowed. While December remains in play, a rate hike this year is not a foregone conclusion,” Ellen Zentner, chief US economist at Morgan Stanley said.

Although forecasters now seem more sure about December, they were similarly convinced about their predictions for a hike in June. But an unexpected contraction in first quarter economic growth muted those calls.

What has perhaps further muddied the waters now is that the Fed’s tone and growth outlook at last week’s meeting suggested a more dovish stance than earlier, even with the jobless rate close to a point that many associate with full employment and the economy expanding 3.7 per cent in the second quarter.