A Fed rate hike this year is still not certain. American banking group Goldman Sachs has increased the odds of a December interest rate hike from 30% to 40%. The odds of a Fed rate hike rise in September have been dropped from 40% to 25%. There has been no indication from the Federal Reserve of any increase at September’s meeting. Many believe it will now likely be December – if this year at all!
The new odds were made after Lael Brainard, Federal Reserve Governor, made comments Monday that appeared to warn against too quick of a rate increase. This was on top of a number of different views expressed by Fed members. It appears that the economy is not showing a strong enough change to warrant a quick decision.
Goldman Sachs economists noted that there had been nothing in her speech that could be construed as preparing next week’s Fed meeting for an interest rate increase. Her speech may have been used to give some indication to markets of a potential rate hike.
After the September 20-21 meeting, there are no more meetings until November 1-2. It is almost certain that there will be no rate hikes just before the November 8 election. The next meeting when an increase in the interest rate would most likely be announced is on December 13-14.
It is widely believed now that the relationship between employment and the interest rate is no longer as strong as it was. There are other connections such as oil prices and trade. When some of the more hawkish members of the central bank suggested that the interest rate was about to be raised, the Dow Jones Index dropped by almost 400 points.
This was Friday. After Monday’s speech by Brainard, the Dow rose quickly again by 150 points. Other indices – the Nasdaq and S&P 500 also increased significantly.
Many traders believe that there will be no Fed rate hike until 2017. However, some Fed members believed back in June that there would be two increases this year. If this forecast was even only 50% correct, one of the next three meetings would likely involve a rate hike.
The most likely meeting for the announcement of a Fed rate hike would appear to many as being next week. Others believe December, while yet others believe not at all. Few, if any, believe November. It’s an ideal situation for a gamble. We shall just have to wait and see!
Pvt. Ltd.
