“This time the market completely changed their attitude and quickly believed them, so now it’s the Fed influencing the market,” Gundlach said.
But Gundlach said there were risks in the Fed’s reverting to more traditional behaviour: it may follow past patterns by embarking on serial interest rate hikes.
As a result, he argued, “there’s no more excuses for why the Fed shouldn’t be raising interest rates”.
What’s more, investors are now bracing for three rate hikes, and perhaps even more, this year after Fed chair Janet Yellen warned last week that future interest rate hikes are likely to proceed at a faster clip than the plodding pace seen in 2015 and 2016.
He noted there had been occasions when “the Fed would have to capitulate because they would say they were going to raise rates and the market would basically laugh in their face in disbelief”.
Will Fed rate hike this week push USD
Will Fed rate hike this week push USD/JPY above 115 again?
Fed rate hike is likely to push this pair towards 1.0620.
In summary, the jobs data did not change the course of an imminent rate hike this week.
Fed rate hikes will close up the interest rate differentiate and the Aussie dollar will slowly lose its carry trade advantage.
Market is already looking beyond to the next possible rate hike by June.
If it is, then the impact of interest rate hikes is expected to be benign, as was the case during the boom of 2004-07
That means the market is expecting three hikes in the federal funds rate this year, with the rate at 1.25-1.5% in December 2017.
Emerging market equities have rallied this year, in spite of the Fed rate hike last December.
Graphic by Naveen Kumar Saini/MintThe markets are expecting three hikes in the federal funds rate this year, with an 88.6% probability of the rate being increased to 0.75-1% on 15 March from 0.5-0.75% currently.
For instance, the Fed raised interest rates by 25 basis points last December, but the dollar has weakened since then.
collected by :John Locas