The Weekly Brief (14 December 2015)Contributor Global Markets Insights Strategy Team
After 7 years with US interest rates at the zero lower bound we expect the Fed to increase interest rates by 0.25% on Wednesday.
With unemployment now at only 5% and job creation running at over 200k a month the Fed seem keen to start raising rates. That said, we expect the increase to come with plenty of assurance that rates are likely to only go up gradually. The market is ready for this move, with close to an 80% probability of a December rise priced into markets already. Historically, equity markets have initially fallen slightly following the first rate increase and then recovered to new highs. Whatever the initial reaction, we think the market will soon come to view this as a sign of the strength of the US
Market implied probability of a 0.25% increase in US interest rates in December
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