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Do the markets believe we will see an interest rate hike in December

NYSE Traders

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While market prices suggest less certainty, 76 percent of respondents to the Bloomberg Survey believe the central bank will hike interest rates in December.

Various market-based gauges put the probability at 43 to 55 percent. On average, respondents to the survey see two to three hikes next year, and the Fed is forecast to finish its rate hike cycle in the second quarter of 2019 at a 2.9 percent rate.

The outlook for the Fed has been clouded by its plans to reduce its $4.5 trillion balance sheet, likely as soon as next month, and by inflation running below its 2 percent target. Meanwhile, more Fed officials have grown concerned about the impact of low rates on markets.

All the 42 respondents to the survey, who include economists, fund managers and strategists, believe the Fed won't hike at the meeting that begins Tuesday, and 68 percent say the central bank will begin reducing its $4.5 trillion balance sheet by October. The balance sheet runoff is forecast to take 4.4 years.

Survey respondents see only modest effects on growth this year and next from the recent hurricanes and actually have dialed in more growth than they have subtracted. GDP is forecast to grow 2.2 percent this year and 2.6 percent in 2018. Most participants lowered their outlook for growth from the storms this year but raised it for next year by a greater amount.

But some believe the Fed will be cautious this year. "The Fed wants to be careful when they begin the balance sheet normalization process and may not want to cloud the process with a December hike,'' wrote Mark Vitner, a managing director and senior economist at Wells Fargo Securities.

Expectations for stock price gains this year and next continue to rise, with the S&P 500 forecast to hit 2,515 this year on average and 2,593 next year.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev


 Varchev Traders

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