Fed rate hike in September?

Will the Fed hike its Fed funds rate in September? Perhaps - and perhaps not. That is what the Fed signaled to the markets in its July meeting minutes. Most FOMC members judged that "the conditions for policy firming had net yet been achieved" but they noted that "conditions were approaching that point". 

The minutes did not contain any signals about the timing of the first rate step. For the FOMC, the decision still hinges on the data. The FX markets have decided on "perhaps not" and sold USD. The Fed fund futures suggest that only about one-third of the FX market participants now expect a rate step in September. 

The Fed's dilemma is becoming increasingly clear. While inflation is still low and the worries about China and the firmer USD trigger some concerns about downside risks to inflation, the economic and labour market developments make it increasingly difficult to delay the first rate hike. 

"A rate step in September is therefore still on the cards. Until then, several key US data will be released which might tip the balance in favour of September. We remain EUR-USD sellers at a level around 1.12", says Commerzbank.