Markets appear as fixated as ever over the timing of the next Fed rate hike. The annual Jackson Hole economic symposium starts on Thursday 25th August, an event where former Fed Presidents have traditionally used the key note speech to signal important changes to monetary policy. Janet Yellen goes into Jackson Hole with expectations of the next Fed hike well into 2017 (March 2017 is the first meeting where Fed Funds futures are pricing in a hike). In December 2015, the Fed signalled the potential for as many as four hikes for this year, but the reality is that the market is now expecting none.
Are the markets too complacent? Is Yellen losing credibility? In her speech on Friday, markets will be looking for something more than her usual fence sitting, but do not count on it. Markets have continued to swing one way and then the other over rate hikes and, I think that currently the markets are looking too complacent. The feeling is that the Fed is looking for a perfect data set up, but can this ever happen? Hawkish FOMC members have been talking up the prospects of a September hike this week, but yet still the market does not believe them. The Fed seems to be worried about upsetting the apple cart, but in truth it may need to shock and take a leap of faith for a hike. However, Yellen will not signal this at Jackson Hole, but I still favour a December hike. I expect a swing back towards the dollar in the coming weeks, just maybe not yet.
We take a look at the key economic events to watch for. We also consider the outlook on forex markets along with equities and commodities to see what the key moves will be in the coming week.
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