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Thursday, December 15, 2016

Donald May Force Fed to Accelerate Rate Hikes

The Fed finally pulled the trigger raising interest rates by 25 basis points and signaling a faster pace of increases in 2017. Meanwhile, U.S. retail sales, industrial output data point to slowing growth U.S. retail sales barely rose in November and industrial production recorded its biggest drop in eight months, suggesting some loss of momentum in economic growth in the fourth quarter. Fed have previously sounded cautious. In September, the central bank scaled back its forecasts for next year from three increases to two amid global economic uncertainty, but brought the projection back to three. Asia markets reacted with a sell down in Shanghai and Hang Seng Index. Donald Trump with his ultra pro growth policies may force the Federal Reserve to become more hawkish.  The risk is Yellen may have loss control and second guessing what Trump`s economic plan may entails. Yellen told Congress after the election that the outlook was fuzzy on that front. But Yellen may not have the luxury of waiting and seeing. If inflation and Treasury yields continue to rise, the Fed might be caught behind the curve and might be pressure to up the pace of rate increases.

US 10 Year Treasury and dollar continue to scale new highs. When the 10 Yr T yield hits between 2.8% to 3% , equities and bonds will both experience a synchronize collapse!

All posts and charts are for educational and illustration purposes only

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