US Fed interest rate hike around the corner?

US Federal Reserve kept its interest rates near zero for almost a decade now, and this year it has brought in many anticipations around. Markets were pricing for the hike since H2 2015 and now the next likely time is December Fed meeting.

Fed has been very dovish in its September 17's meeting, but recently it let out some cues on the interest rate hike in its last meeting. Will the Federal reserve hike or wouldn't they is a major question that is hovering around the markets now, including several Emerging market's Cen banks.

Fed also seems inclined towards a hike, as signalled in the latest FOMC statement. The markets previously pushed the 25 bps hike to August 2016, now that is priced in for April. USD might strengthen on back of these rate hike anticipations, especially against JPY.

"Our US economists are still calling for a hike in December though over a slightly longer horizon, it should not matter whether the Fed starts in December or March. The point is the first hike will dispel fears that the US may not have time to tighten before it is hit by its next recession", says RBC Capital Markets in a research note. 

Some market participants also debate that USD strengthens ahead of the first Fed hike and sells off after. This masks wildly different reactions to Fed tightening cycles. The degree of uncertainty heading into this cycle and the flatness of the forward curve suggests that the greenback should do well in this tightening cycle.