Why a December Rate hike is not a lock

• Posted by Greg Harmon
• on November 25th, 2015

The October meeting happened. The minutes showed less concern over the world economy. Fed Governors came out and started talking about December being a “live meeting”. Even the Chairman stating talking up December, or so the market seems to think. The Fed Funds futures jumped to showing over a 70% chance of a rate hike priced in. So is December a done deal?

Consider a few points as to why it may not happen. First, the economy is running along at a moderate pace. With the Q3 GDP print revised to 2.1% Tuesday morning, overheating is not a term that will be used to describe it. And inflation is not picking up. Yes there are pockets that will support a return to normal case if you tease the data enough. But look at the chart of the CRB Index below. This is not moderating. Or even leveling. It is falling.

There is no in depth analysis here. Just two simple truths. The economy is moving along higher at a moderate pace and inflation is continuing to fall. In any world other than a ZIRP world the thought of raising rates would be just absurd. So why now?

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