No Rate Hikes in 2015 After All?

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" - intermediate-term market-based inflation expectations, which have fallen to 2009 levels;

- wage growth falling [to 1.7% per annum] from a fairly stable level of 2% per annum. In particular, “production and nonsupervisory employees” saw a sharp decline in wage growth - in spite of robust growth in payrolls;

- Economists have been expecting the recent strength in US labor markets, including big increases in job openings, to translate into stronger wages. However, just the opposite has taken place.

- Now, combine slowing wage growth with global disinflationary pressures and the collapse in energy as well as other commodity prices.

Putting it all together points to rising risks of deflation in the US. There is absolutely no way the Fed can raise rates in this environment. In fact some Fed officials are quite open about taking any 2015 rate hikes off the table.

Nevertheless, the markets still anticipate the first hike in late Q3/early Q4 of this year. This is somewhat surprising, considering that in the UK, for example, rate hike expectations have been shifted to 2016. "

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