The Fed Countdown Begins

Welcome to Fed week! This week’s trading will naturally be dominated by news of whatever the Fed decides to do this Thursday. There seems to be a consensus that the Fed will stand pat. I was surprised to see that Bill McBride, the talent behind Calculated Risk, say that he thinks the Fed will raise rates. So the consensus isn’t universal.

One difference with this rate hike is that it probably won’t be the start of a rate hike cycle like we saw before the crisis when the Fed hiked rates at 17 consecutive meetings. In recent years, several central banks have raised rates only to cut them again. In fact, just about the only central banks that haven’t raised rates at all are the Fed and the Bank of England, and we’ve both had some of the best recoveries. I think there’s a very good chance that we’ll get one or two rate hikes followed by a long pause.

In the WSJ, Harriet Torry and Jon Hilsenrath point out that there’s still a gap between the Fed’s long-run view and that of investors. In June, the Fed’s “blue dots” saw rates at 1.625% at the end of next year, and at 2.875% by the end of 2017. But the futures market for Fed funds sees those rates at 1% and 1.5%. When in doubt, I side with the market’s view. This week, we’ll get another view of the Fed’s projections.

Posted by on September 14th, 2015 at 10:54 am


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