Despite the darkening global backdrop, the continued strength of the US economy will be enough for the Fed to raise interest rates as planned in December. Fed officials have acknowledged the weakness of the incoming economic data from overseas, including outright declines in third quarter GDP in Germany and Japan, and the continued slowdown in China. Together with the stronger dollar, weaker global demand will weigh on the manufacturing sector over the coming months. But domestic demand growth remains strong and the latest plunge in global oil prices should be a net positive. The labour market is still firing on all cylinders and core inflation is at the 2% target so, barring a complete meltdown in equity markets, we expect the Fed to press ahead with its gradual rate hikes.
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