Without a Strong Consensus, Fed Will Probably Not Raise Interest Rates

With inflation still well below target levels, and a lack of consensus one way or the other, the Federal Reserve is unlikely to hike interest rates at this month’s meeting, says the Wall Street Journal’s Jon Hilsenrath.

The paper’s designated Fed watcher, Hilsenrath has a solid track record of predicting the Fed’s moves. He says that while the vote is split, a rate hike probably won’t happen. From the WSJ:

It is a close call. But with inflation holding below the Fed’s 2% target and the unemployment rate little changed in recent months, senior officials feel little sense of urgency about moving and an inclination toward delay, according to their public comments and recent interviews.

The Fed’s decision has become the subject of intense market speculation in recent days. Interest rates can affect stock valuations, the cost of financing a home and whether companies will take on big new projects, making the central bank the perpetual center of market attention. Wall Street is especially attuned to when the Fed will move after it has decided to hold rates steady so far this year.

Many pundits believe the Fed should have boosted rates up to historical norms long ago, contending that the risks of leaving rates too low for too long outweigh the potential market shock of rising rates. Among them, it appears, is JPMorgan CEO Jamie Dimon:

Despite its hesitance, the Fed faces some external pressure to move. “Let’s just raise rates,” said J.P. Morgan Chase & Co. Chairman and Chief Executive Officer James Dimon at the Economic Club of Washington, D.C., on Monday. Bankers have been complaining more broadly that low rates hurt their profit margins because it holds down what they can charge customers for loans.

“You don’t want to be behind the eight ball on this one, and I think it’s time to raise rates,” he said, and a quarter-percentage-point increase would be a “drop in the bucket.”

With November’s presidential election looming, the Fed faces added pressure to maintain the status quo. Although it won’t admit it, the organization does in fact bow to political influence — every member of the Federal Reserve is a political appointee, after all, and they could very well be replaced when a new president takes office in a couple of months.

Donald Trump stirred the pot recently with his comments about the Fed, saying they should be “ashamed” of zero percent interest rates that have created a “false stock market.”

The Fed meets next week, on Sept. 19-20, to determine its next policy decision.

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So far today, the bond markets have little response to Hilsenrath’s prediction. The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT), which is tied directly to long-term bonds, posted small losses in Tuesday morning trading. The TLT has risen 12.37% this year, boosted by government bond interest rate declines as investors continue to call the Fed’s several-year-long “rates rising” bluff.

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