M&G's Leaviss: Fed rate hike would surprise the market

Yellen faces tough decision

Jim Leaviss, head of retail fixed interest at M&G Investments, discusses the possibility the US Federal Reserve may raise interest rates from record lows later today.

Whether the Fed hikes or not is less important than determining where the terminal Fed Funds rate is in a potential rate hiking cycle. Fed tightening in this cycle will likely be unusually slow, cautious and well communicated to markets. A rate hike today would surprise the market, which is pricing in a 30% probability of a move in interest rates. Why the Fed is in 'serious danger of hubris' The short end of the curve would likely take the brunt of any initial market reaction, resulting in some flattening of the US treasury curve. In order to see bond yields move much higher, a reas...