We knew Carney was thinking about hiking, but when?
The OIS market is pricing in one rate hike and a 76% chance of a second rate hike by this time next year. That's been rising this week after Carney said this:
"The point at which interest rates may begin to rise is moving closer given the performance of the economy," Carney said. This is "counterbalanced somewhat by disinflation."
There was some talk about sooner hikes but the focus is starting to converge around May. Carney helped to sharpen that today as he generally ruled out a hike before year end.
"It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year."
In other words, the time to think about hiking won't really start until December/January. The market is pricing in about a 40% chance of a hike in December, that's probably too high. That's why GBP hasn't extended gains after an early pop and why it might begin to fade.
For March a hike is now fully priced in and that sounds about right but you could also argue it's a bit aggressive.
