Fed communication failing to work

Fed Vice Chairman Stanley Fischer repeated what his FOMC colleagues have been preaching since the September meeting: lift off will take place before the end of the year. So far the market reaction to the U.S. central bank's communication strategy went along the lines of the German saying "I hear the message but I lack the faith". The December Fed Funds Future does certainly not price in a rate hike until year-end. 

The FOMC members themselves are to blame for the fact that their comments are without effect. Many market participants are simply too disappointed that the rate step did not take place in September even though the environment for a rate step seemed almost ideal at the time.

So who will still believe the Fed's affirmations that the key rate would now definitely be hiked in December? In particular as there will always be some reason to postpone the step again, at the moment this might be the low market based inflation expectations, which the Fed seems to be increasingly interested in these days having ignored them contemptuously so far, states Commerzbank. 

Admittedly, for the USD exchange rate the speed of the rate hikes following the lift off will be more important than the timing of the lift off itself. However, many will wonder what sort of a rate hike cycle this is going to be if the central bankers have to be carried even to the first step. As ignominious as the failure of the Fed's communication strategy may be, the Fed is likely to appreciate this effect, added Commerzbank.