Thursday, September 17, 2015

Can the Fed raise interest rates? [Analysis]

by Osman Parvez
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The Fed will hold a press conference at 2:30 ET today (livestream link). According to Bloomberg, futures contracts show a 28 percent probability that the Fed will boost rates when it meets this week. No change in rates is already baked into today's market activity. It's likely to be a non-issue, unless the Fed surprises the market with a rate increase. 

The most interesting analysis I found on the issue of rate increases came from a new media outlet. Ignore the sensational title. Read the high quality content in "The Fed is about to attempt the greatest monetary experiment in history" by Matt Phillips from Quartz.

An excerpt: 

"For years, everyone involved with investing has wanted to know: When will the Federal Reserve raise interest rates?

But there’s another important consideration that isn’t asked nearly enough: Can the Fed raise interest rates?
  
That query is more than academic. With the US economy looking increasingly strong, some still think the Federal Reserve could act to raise rates after its monetary policy committee, the Federal Open Market Committee, meets this week (Sept. 16 and 17).

Such Fed rate increases used to be commonplace. But those days are long gone. It’s been roughly nine years since the US central bank last ratcheted up its once primary policy rate, known as the Fed funds rate.

And in the near decade since then, pretty much every rule, technique, and guideline the Fed once relied on has been drastically rewritten, revamped, or removed. That blank slate underscores the fact that seven years after the financial crisis, the US economy continues to feel the reverberations.

In the words of one analyst, when the Fed tries to raise interest rates “their actions will entail the largest monetary policy experiment in human history.”

In my opinion, the real analysis isn't about today's decision. The issue is when and more importantly how will the Fed respond to the eventual coming global downturn. It's well worth your time to read the full piece here


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1 comment:

  1. And, this is the problem. It's all based on guesses. Maybe educated guesses, but guesses none the less.

    ReplyDelete