Fed may hike bank rates in 2016 and 2017

Investors have markedly shifted their assessment of the likelihood of the Fed hiking rates this year and the extent of tightening in the next two years, as concerns about China's growth prospects erupted in early August. 

Thus, rates markets are now pricing in a 30% probability that the Fed hikes rates in December, down from more than 70% in early August, and that the Fed will hike by less than 50 bp in both 2016 and 2017, says Nordea Bank.

The sharp repricing of the outlook for Fed interest rates has been amplified by the fact that recent US economic data including employment data have generally disappointed compared to consensus expectations. 

Two months of weak jobs reports, stagnation in manufacturing and major dips in the stock market have many investors and analysts worried about the state of the U.S. economy.