Fed rate hike likely to happen next year

As the markets continue to sell-off, the Fed hike is under suspension. Global growth is weak, Chinese policy mistakes have destabilized their markets and the US equity market has finally succumbed to the pressure, with a roughly 10% correction. Therefore, some economists, expecting significant delay in Fed tightening, have shifted their Fed call to next year

Given the stark contrast between the domestic data and the markets, Bank of America considers following scenarios in the U.S. economy:

• The baseline forecast is that markets calm over the next three weeks, data stays positive and Fed hikes in September.
• Market turmoil is slow to abate, but data remains healthy, delaying the first hike to October or December. This seems like the second most likely scenario.
• Market turmoil first delays the Fed, and then starts to have a significant negative impact on the macro data. This pushes out the first hike well into nextyear, or indefinitely.