Markets Bet for a Fed Rate Hike in December

Markets Bet for a Fed Rate Hike in December

Markets Bet on a Fed Rate Hike in December

The FOMC mins showed a discussion of inflation with the current low figures being dismissed as being due to technical issues rather than underlying trends.

In an environment where inflation is generally low, technical distortions assume a lot more importance.

A 0.4% drop in consumer price inflation because of technical changes to the calculation of mobile phone operator prices is a far bigger deal when inflation starts at around 2% than when it starts around 5%.

The relationship between inflation and unemployment, as demonstrated in the “Philips Curve,” whose theory states that with economic growth comes inflation that then leads to more jobs and less unemployment.

That relationship does seem to be holding when technical distortions are excluded.

The Fed expressed concern about the consequences were unemployment to decline much further.

When reading somewhat between the lines of the FOMC mins, investors could detect a hint that there is perhaps a desire at the Fed to get this QE policy tightening firmly underway before Fed Chairwoman Yellen’s term expires on 3 February 2018.

The next big event will be Fed Chairwoman Yellen’s testimony before the House Financial Services Committee on 12 July 12, which should, hopefully, give us a sense where the divisions in the Fed will resolve themselves with regard to passive QE tightening.

US Ambassador to the United Nations Nikki Haley said that North Korea’s actions were “quickly closing off the possibility of a diplomatic solution” and the United States was prepared to defend itself and its allies.

“One of our capabilities lies with our considerable military forces. We will use them if we must, but we prefer not to have to go in that direction” Amb. Haley said

North Korea’s missile test on Tuesday was confirmed as a “theoretical” intercontinental ballistic missile test. It’s theoretical because the missile didn’t actually travel the required distance, but it’s trajectory indicated that it could.

With what we know now, it appears very unlikely that North Koreans could arm such a missile with a nuclear device, and it is unlikely that they have the ability to actually hit a specific target.

Friday and Saturday at the G-20 Summit in Hamburg, Germany to see if President Trump’s international standing can achieve his goals through diplomacy.

Stay tuned…

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