Markets poised for US week of reckoning

30th November 2015 By: Ranko Berich

Expectations for the Fed coming into December could hardly be higher than they are right now. From Federal Funds Futures to the dollar, markets are increasingly treating rate hikes like a done deal.

As the FOMC’s most vocal dove, Lael Brainard’s speech on Tuesday will be essential for judging if current expectations of hikes are right or wrong. She may concede that her views are in the minority, leaving the path clear for December, or she could double-down on her previous remarks and denounce the majority’s intention to hike. Either way, this will be a critical bellwether for the balance of opinion within the Fed.

On Wednesday, Janet Yellen faces the unenviable task of testifying to the Joint Economic Committee at a time when her every word will be picked apart. Any direct commentary on monetary policy will be extremely measured, for fear of it being taken as a promise of how the FOMC will vote.

By the end of this week we will have a crystal clear picture of whether the Fed will hike rates in December. The risk is that all those markets that are aggressively pricing in Fed action could see sharp pullbacks if any flies are found in the ointment.