“The decision to raise rates is dependent on a combination of US economic growth, stable stock markets and global macro-economic events, all of which have led the Fed to hold off its decision to raise rates in 2016,” Lowcock continued. “Focus will now turn to the US presidential election, the result of which could have a significant impact on markets and the confidence of investors.”
According to Thanos Bardas, head of interest rates and sovereigns at Neuberger Berman, the Fed risks ‘losing investors’ attention’ through its inaction.
“Some key global risks that helped delay Fed action have receded, including Chinese growth prospects, currency volatility and weakness in emerging markets,” he noted. “Even Brexit fears have eased as UK data continues to surprise on the upside.
“With less to worry about, there’s more concern about the danger of stimulus-related excess, whether in commercial real estate, corporate balance sheets, or aggressive share buybacks financed at low rates.
“Given the upcoming election, we don’t believe that a move in November is likely,” Bardas added. But a December rate hike would put the market on notice and set up an expectation for increases at least every 12 months. That said, much depends on the data.”
