Two Critical Questions for the FOMC
​As we expected, markets have priced in greater probabilities of Fed policy action in 2016. Futures markets currently imply it is essentially a coin toss whether the Fed increases rates by December or not.
In our view, the FOMC faces two key questions going forward:
- How fast will core inflation increase over the next six months?
- How much overshoot of their 2% inflation objective are they wiling to tolerate?
We expect rate hikes to be on the table at September’s meeting but for the Fed to wait to actually pull the trigger until December – due to a potential “risk event†in November.
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