US: Gradual rate rise after December lift-off – Deutsche Bank

By FXStreet FXStreet (Delhi) – Research Team at Deutsche Bank, suggests thattThere is now broad-based consensus that the Fed will take the plunge at its 16 December meeting and raise rates for the first time since 2006.

Key Quotes

“Despite this consensus, there are lingering concerns that this shift in policy is a mistake. We disagree: the economy is strong enough to withstand higher rates. With the quasi-certainty of a hike this month, focus shifts to the Fed outlook beyond lift-off. How quickly will rates rise? How high will rates go?”

“We expect the Fed to raise rates gradually in 2016 as it assesses the economy’s reaction to this policy tightening, with the pace of hikes accelerating thereafter as the forces for going slow fade. The market is pricing a much more gradual ascent in rates; this disconnect should be resolved after a few hikes, with the market converging toward the Fed’s projections. Further out, rates should peak lower than in the past but very likely higher than current market expectations.”

“Within 2016 the Fed may hike more in the first half than the second half. From a macro point of view, inflation is likely to start slowing around mid-year. From a markets perspective, the repricing …read more

Source:: FX Street