by Calculated Risk on 12/11/2015 12:16:00 PM

A few excerpts from a research piece by Merrill Lynch economist Michael Hanson: The not-so-dovish hike

With the market pricing in a better than 90% chance the Fed will hike at its December meeting, liftoff expectations are very different than in September. However, it is déjà vu all over again for talk of a “dovish hike” thereafter. We do not expect the Fed will be find the right mix of language, projections, dots and press conference remarks that ratifies current market expectations of a little more than two hikes next year — particularly when the Fed views four as “gradual.” The overall message from the December meeting is likely to be dovish, but probably less than the market hopes. ...

The challenge for Yellen will be to find the right balance between “gradual” and “data dependent.” ... the Fed does not want to suggest that it will pre-commit to any particular policy path. Several Fed officials have noted that “gradual” is a forecast, not a promise. As long as the data behave largely in line with the FOMC’s projections, a gradual pace of rate hikes is likely. But Yellen’s ability to explain this nuance to a market that would like a clear sign that the Fed is going to go even more slowly in 2016 may well be tested.

From CR: It seems that the Fed will raise rates next week. For 2016, several key analysts are forecasting 4 rate hikes (every other meeting), however the market is only pricing in about 2 rate hikes in 2016.