Ahead Of 2016's Final FOMC Meeting, U.S. Economy Better Positioned For Rate Hike

Michael Darda, MKM Partners' chief economist and market strategist, commented in a research report that the market is in a better position today to absorb a Federal Reserve rate hike compared to the same period a year ago.

According to Darda, Fed funds are pricing in a 60 percent likelihood of a 25 basis point rate hike on December 14, and the only thing that can derail this event is the release of "surprising enough" economic data over the coming few weeks.

A Reuters report places the odds of a Federal Reserve rate hike at 75 percent.

Darda continued that while he believes the case against a rate hike is stronger than the case for one, investors could be comforted in knowing that last year's setup into the December 2015 rate hike was characterized by the Fed signaling for four more rate hikes.

Moreover, last year's rate hike was associated with credit markets and eventually the equity market "going into a tailspin."

"Indeed, as the Fed has slowly adjusted its dot-plot down closer to where market expectations are, credit markets have stabilized," Darda added. "Bond market inflation breakeven spreads, although still too low in our view, have nonetheless moved up to 2016 highs. This is a much better set-up coming into an imminent rate hike than the soaring risk spreads and plunging inflation expectations of last December. "

Image Credit: By Dan Smith - Own work, CC BY-SA 2.5, via Wikimedia Commons