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Fed comments fuel the fire of rate hike speculation

The Federal Reserve kept interest rates at near zero once more last night but continued to fuel the ever intensifying fire of speculation concerning when the first rate hike in nine years will be.

Chairman Janet Yellen primed the markets in her Statement with positive US economy sentiments, primarily citing progress in the US job market as the main instigator. The US unemployment rate has decreased from 10% in 2009 to 5.3% in July of this year. Yellen’s wording of ‘hiring gains’ seen as an improvement from the Fed’s June policy statement which noted ‘jobs gains had picked up’.

The main sticking points and reasons for everyone to be hesitant, however, should be that the inflation target of 2% has still not been reached as well as the slowing growth in China which is putting downward pressure on the price of commodities and manufactured goods imported into the US.

Nevertheless the USD strengthened across the board as a result of these comments. We saw Spot Gold (XAUUSD) fall $10 from $1093 to $1083 per troy ounce with a possible dip below $1000 for the first time since 2010 becoming an ever increasing possibility; WTI Crude Oil futures dropped 0.3% to a low of $48.64 a barrel erasing earlier Asian gains, whereas its European counterpart Brent Crude Oil held up better remaining in positive session territory at 53.80; GBPUSD dipped below 1.56 with EURUSD also heading south once more reaching a low of 1.0942.

As seen on Bloomberg TV this morning, although there is no doubt a rate rise is imminent; debate is still rife as to the timing. Some analysts are predicting this to come as soon as the next Fed Statement in mid September, whereas the general consensus seems to be that this may still be a bit too soon. December seems a more likely scenario with polls quoting this at 74%.

Other countries are expected to be waiting for a US move before pulling the trigger on a rate rise themselves. The most prominent being the UK where vast improvements in the employment market have also been seen. The Turkish government have actually gone one step further and confirmed this morning that they will indeed raise rates as soon as the US does.

There are two more Non-Farm payroll job reports before the Fed’s next policy statement and all eyes will be on these to dictate what happens next.

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