Monday, September 14, 2015

The Consensus is No Rate Hike this Week

by Bill McBride on 9/14/2015 04:31:00 PM

Some random thoughts ... Based on the data, I noted that a rate hike this week is possible, even likely.  However the consensus of economists is no rate hike at the FOMC meeting this week.

Economists at Goldman Sachs, Deutsche Bank, J.P. Morgan, Nomura, and many others see December as more likely than September (some see the Fed waiting until 2016). Economics professor Tim Duy also thinks a September rate hike is unlikely.   Duy and Goldman Sachs chief economist Jan Hatzius have probably been as accurate as anyone in forecasting Fed actions - and neither expects a rate hike this week.

The arguments against a rate hike are low inflation, low inflation expectations, market based financial tightening (stronger dollar, wider credit spreads), global economic weaknesses, recent stock market volatility, slack in the labor market, and asymmetrical risks (hiking too soon poses much larger risks than waiting too long).

Those arguing the FOMC will probably raise rates this week point to "some further improvement" in the labor market since June, and that the forces holding down inflation are dissipating.  The revisions to the FOMC projections will be mostly supportive of a rate hike - and it wasn't long ago that FOMC members were hinting they'd hike rates in September if the economy evolved as expected.

In a WSJ article yesterday, Harriet Torry and Jon Hilsenrath pointed out that every central bank that has raised rates over the last seven years had had to reverse course. See: Lesson for Fed: Higher Interest Rates Haven’t Been Sticking. Of course that will be true for the FOMC meetings in October and December too!

A rate hike this week still seems possible to me (just focusing on the data), but it seems every research piece I read says "no".