Another Push-Out on Rate Hike Timing Expectation

Credit Suisse sees September as now less than a 50% for a rate hike. This is after the global growth outlook is worsening and with the dollar rising. Their view is that a September rate hike could exacerbate declining risk appetite. There is also even more risk to the economy getting up to the 2% inflation hurdle.

Credit Suisse said:

Our upbeat view on US growth is unchanged. Next week’s revisions could push Q2 GDP growth above 3%, and first half GDP to nearly 2%, close to the trend of recent years. Consumption likely grew close to 3% in the second quarter, powered by falling energy prices and increasing labor income. These conditions are likely to remain in place, and energy investment is unlikely to fall sharply again, despite still falling oil prices. We expect second half GDP to grow at about 3%… However, there are still few signs that nominal GDP growth, core inflation, or wage inflation is accelerating. There is thus no urgency for Fed hikes apparent in these key indicators.

On the ex-US situation, the firm sees conditions outside the US as getting worse due to falling commodity prices, a weak Chinese economy, and ongoing expectations of dollar appreciation. The outlook for headline inflation around the world is clearly worsening.

On the timing, Credit Suisse’s report:

September is still a close call. A sharp risk rally and commodity rebound in the coming weeks could still prompt a hike. As could, of course, sudden news that wages, inflation, or nominal growth is running much higher than expected. As for beyond September, we still expect one rate hike by year-end and think the odds of a hike for each meeting in the next 18 months is close to 50%. That includes the October and December 2015 meetings. Contingent on upcoming data, our official call for the first Fed rate hike is now December 16, 2015.

Well, that is just another cap in the feather for later rather than sooner.