The Federal Reserve will meet on September 17th to decide, yet again, whether nor not to raise interest rates. The date is approaching fast with investors and economists alike focused on figuring out what is going to happen.
Following the recession, interest rates have remained at near 0 percent level, which has now spanned a total of eight years. The FED is nervous about the negative impacts which could result if they were to tighten the economy too soon. This is why they have avoided raising rates for this long and are still skeptical of whether or not the economy is finally ready.
A September interest rate was expected by many traders and economists. They have dissected every economic data point, every comment from Federal Reserve officials, and every official statement released. But as September 17th draws closer, they are no longer so certain.
The Federal Open Market Committee released the minutes from their July meetings this past Wednesday, and based on the tone of these meetings, many are more confused about Federal Reserve’s plans now more than ever. Bank of America Merrill Lynch has reduced their predictions for a September liftoff down to a one-in-three chance.
While the liftoff may not take place in September, it is apparent that there is growing support for a change. As the Federal Reserve Bank of St. Louis describes in a recent research paper, after six years of quantitative easing that swelled the Federal Reserve’s balance sheet to $4.5 trillion, the policy has “has been ineffective in increasing inflation” and appears to have only boosted stock prices.
However, if no rate hike happens in September many believe that a 2015 hike will unlikely to happen at all. Societe Generale economist Aneta Markowska notes that neither October nor December are attractive options as October lacks a scheduled press conference and December coincides with lower year-end trading volumes, which would magnify a potential bond market selloff.
For now, all traders and economists can do is wait and see what the Federal Reserve decides to do. While we wait for September 17 to approach, we can be sure to expect some interesting activity on the stock market.
To learn more about the activity surrounded the Federal Reserve meeting, check out this article here.