US: Debate about Fed’s hiking continues - Rabobank

Piotr Matys, EM FX Strategist at Rabobank, suggests that the markets remain unconvinced that the Fed may raise the borrowing costs in the coming months.

Key Quotes 

“The implied probability of a hike in September is still relatively low at 32% and at 36.4% for October before rising to 59% for the last meeting this year in December.

While the debate about the timing of the next move is set to prevail, it is important to stress that the entire tightening cycle is likely to be very gradual. Our baseline scenario assumes a 25bps hike in December and just one hike of 25bps next year. The FOMC may actually declare a formal pause in the hiking cycle should the outlook for the US economy deteriorates, according to Philip.

The prospect of the Fed maintaining a cautious approach will continue to support risky assets.”