Moody's: The Fed needs to convince the market that more rate hikes are coming

The U.S. Federal Reserve must do a lot of work to convince skeptical markets that interest rate hikes are in the cards, said Mark Zandi, chief economist at Moody's Analytics.

So far, markets have been pricing in a less than 50 percent chance of an interest rate hike in December.

At the meeting set to begin September 19, the Fed was widely expected to begin winding down its $4.5 trillion balance sheet, which was mainly a portfolio of bonds accumulated following the global financial crisis and Great Recession.

Zandi said that with the U.S. economy performing "very well," and unemployment around 4 percent and falling, it was time for the Fed to act. But he didn't expect Yellen's speech at the Jackson Hole symposium would move the needle much on the Fed's script.

Zandi added, however, that there were some potential rocks on the tracks that could derail the Fed's timeline, citing the need for the U.S. Congress to raise the Treasury debt limit and pass a budget to prevent a government shutdown.

Also he didn't expect Draghi would comment on monetary policy in any significant way. But he added that Draghi might make "roundabout" comments on the recent strength of the euro, which has appreciated by around 12 percent against the dollar so far this year.

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov

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