Will or won’t the US Federal Reserve hike interest three times in 2018? Although this has been talked up for months now, we don’t expect a rate increase from the next meeting of the Fed’s Open Market Committee, scheduled for 31 January. Indeed, as long as inflation does not clearly pick up, the Fed will be reluctant to tighten money.
But, if it does, three hikes in 2018 will disrupt markets. A serious sell-off would become likely.
For now, investors trust the Fed. The front-end of the yield curve will continue to increase, and the US equities frenzy will keep going. The US dollar has strengthened since last Friday and should continue to do so in the short-term. The Fed’s tightening hand has also been weakened by the latest employment figures. Both the non-farm payrolls and the ADP report for December have been revised downward, which will make the central bank even more cautious.
By Vincent-Frédéric MIVELAZ