FOMC participants in spite of strong indication of intention to hike rates this year has been struggling to decide on appropriate time and now looking beyond to next year.
- Second quarter, June rate hike got hampered by weakness in the economic activity in first quarter.
- Emerging market weakness, lower commodity prices, financial market volatility over weakness in China prevented FED from doing so in September.
- Focus now has turned to December, though implied probability of rate hike is now around 30% compared to close to 60% in early September.
After last week, task is likely to have turned tougher, given European Central Bank's (ECB) announcement of possibility of further easing and People's Bank of China's (PBoC) 25 basis points rate cut.
If policy easing is pursued by major central banks, while FED raise rates, Dollar is likely to rise further making the domestic situation even bitterer. Strong Dollar already have started to erode US Firm's competitiveness and leading to deterioration of trade balance.
Many of the domestic firms have started announcing job cuts, which is only likely to make it difficult for wages to rise and lead to demand driven inflation.
Next FOMC policy announcement is scheduled on 28th October at 18:00 GMT.


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