Two Interest Rate Hikes, Rather Than One, Could Be In The Cards - Here Are The Ramifications

A number of officials from the central bank have already suggested that two rate rises are possible this year, and now economists and investors assessing the economic data are also leaning in favor of two hikes. The quid pro quo for rising interest rates is a strengthening US Dollar Index and if that does indeed happen then it would really hammer Wall Street equities – especially high-yielding dividend stocks.

By I.M. Vronsky (gold-eagle.com)

San Francisco Fed President John Williams has said his preference would be for two rate hikes before the end of the year, echoing comments he made in June.

Fed governor Jerome Powell has also said he was prepared to raise interest rates twice this year in September and December as long the economy continues to perform as expected…

Senior foreign exchange strategist at ANZ, Khoon Goh, told CNBC; “My base case is they hike in September, with two hikes before the end of the year. The market is not really fully priced for that, so a hike in September will be dollar positive. I think for September, the market is only about 10 basis points priced in, meaning a large portion of the market are not positioned expecting an interest rate rise, which could push the dollar index against a basket of currencies above the 100 level, up from its current levels of 96.5.”

Without question the Fed is slowly and methodically raising the Fed Funds Rate [as can be seen in the graph below,] which is driving the US greenback higher. Moreover, we may count on this hawkish Fed policy to continue for the foreseeable future…[as] Fed Chair Yellen… “orchestrates” her future legacy.

…As the Fed Funds Rate increases, thus fueling higher levels of short-term US Treasury Yields, the US Dollar Index will continue to rise with a possible price objective of 120 sometime in the near future. As history is testament, the quid pro quo for rising interest rates is a strengthening US Dollar Index.