September Fed Rate Hike Still in Play

The debate about whether the Federal Open Market Committee (FOMC) will raise rates at its Sept 16-17 meeting continues. According to Seeking Alpha, a recent survey indicates a majority of the economists polled believe the Fed will hold rates steady—however, many still consider the decision a toss-up.

Economists at Wells Fargo are some who think it could still happen. Although “inflation continues to run well below the committee’s 2% target … the Fed has made it clear it only needs to be confident inflation is moving back to target over the medium term, typically viewed as around two to three years,” stated the firm's Economics Group. “The Fed’s focus on longer-term drivers suggests a September rate rise is still in play.”

FOMC members have said they want to be transparent about when a rate increase would take place to mitigate disruptions to financial markets. And while many analysts were convinced it would happen this month, unexpected market ups and downs have shaken that resolve.

“A couple of weeks ago, I would have said they’ll raise rates in September if for no other reason than to stay consistent with market expectations and to calm all the speculation surrounding when the first rate hike will take place,” said Joseph Pickard, chief economist for the Institute of Scrap Recycling Industries. “But given the market volatility in recent weeks, I would lean more toward waiting until December as the Fed doesn’t want to be seen as adding to financial market volatility, especially given the still very low inflation levels.”

Financial instability in the emerging markets is expected to increase in the wake of the inevitable Fed rate hike, wrote Euler Hermes Chief Economist Ludovic Subran in the article "Fed Quake: Who Will Bear the BRuNTS?" in the September/October edition of Business Credit magazine. However, the impact most likely will not resemble the collective crash experienced after Fed rate increases in the 1990s, Subran noted. "There is improved resilience in the emerging markets.”

On the other hand, even though some signals suggest a temporary delay, current U.S. macroeconomic numbers (retail sales, industrial production, housing) "more than trump the mild hysteria associated with China's recent currency 'adjustment,'" said Bob Garino, vice president of Houston-based Export Advisors. For that reason, Garino still believes the Fed will raise rates in September, absent further evidence of deflation.

And so the conversation goes. The end of the week, however, will reveal who’s correct about the September deadline as well as provide fuel for the next round of discussions about when, or if, FOMC raises rates.

- Diana Mota, NACM associate editor

Ludovic Subran will serve as the keynote speaker for FCIB's 26th Annual Global Conference in Miami, October 11-13. For more information about Subran's appearance and other educational sessions or to register, click here.

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