Fed: Market is under-pricing the risk of a December hike - BBH

Research Team at BBH, suggests that if the market is under-pricing the risk of a December hike, it appears to be exaggerating the likelihood of a November move. 

Key Quotes

“Bloomberg's calculation estimates that market pricing is consistent with a 17.1% chance of a hike next month.  The CME's calculation puts its 10.3%, while our own calculation puts it at 7.5%.  However, that is just the math.  Away from the abstract computation, we want to say that there is no chance of a hike a week before the US election.  There is simply no precedent for it, and that urgency is not such that it would demand a violation of this precedent. 

Claims that the Federal Reserve has not raised rates this year (yet) based on some political calculus is wide of the mark, even though we thought a hike could have been prudently and cautiously delivered already this year.  Our error lay not with under-appreciation of political leverage, but rather in not sufficiently recognizing the extent of the inventory-investment cycle (slower cyclical growth) and difficulty in getting the domestic economy and global developments to be aligned.”