This column was published on Sept.11, 2015 one week ahead of the Fed decision on whether to finally start the path of interest rate hikes or not.
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If there was any doubt beforehand, a key economic number Friday finally may have taken September off the table for an interest rate hike.
Consumer sentiment tumbled in September, with a reading of 85.7 in the latest University of Michigan monthly survey.
While that number often garners a fair mount of attention on Wall Street and can move the market, it takes on added importance because of recent comments from New York Federal Reserve President William Dudley.
The influential Federal Open Market Committee member said on Aug. 26 that the confidence survey would play an important role in his thinking when the panel meets next Wednesday and Thursday. That statement came during a press briefing at which he said the case for a September rate hike has become "less compelling" in recent days.
"That loss of confidence feeds back into the real economy through lower spending, and that's what the Fed is very concerned about," said Jeff Rosenberg, chief investment strategist for fixed income at BlackRock, the $4.7 trillion asset manager. "That concern ... that's registered in market expectations that the Fed is unlikely to raise rates. I think the weak data has certainly taken down those probabilities, along with the uptick in financial market uncertainty."
Karen Bleier | AFP | Getty Images
The U.S. Federal Reserve building in Washington.
Indeed, while surveys of experts including economists and strategists indicate a belief the Fed will hike rates next week for the first time in more than nine years, futures trading shows just the opposite.
The CME's FedWatch gauge now assigns just a 21 percent probability for a September move, down 24 percent from the day before and 45 percent a month ago. Traders believe December is the most likely date, assigning a 58 percent chance.
After a relatively placid seven months, markets turned violent in August as investors fretted that a slowdown in China would reverberate globally, and as anticipation built over the Fed's first rate hike since June 2006. Fed officials at one point had been teeing up March 2014 as a likely hike date, but that got pushed back repeatedly as economic data have been uneven and volatility has built up in financial markets.
Most Fed watchers believe an October hike is unlikely in part simply because there is no post-meeting news conference scheduled with Chair Janet Yellen. However, Yellen indicated back at the March meeting that a conference was not a prerequisite for a hike; one could be scheduled impromptu so she has the opportunity to explain the rationale behind the move.
Deutsche Bank is now among the few Wall Street firms to change its forecast from a September hike, and stands nearly alone in now predicting an October move.
Read More September shaping up as Fed's worst nightmare
"We expect an October rate hike to be followed by two more 25 basis-point increases at next year's March 15-16 and June 14-15 FOMC meetings," Deutsche Bank's chief economist Joe LaVorgna and others said in a note to clients Thursday. "Then, the Fed could pause in order to assess the lagged impact of modestly tighter monetary policy on economic activity."
LaVorgna believes seven conditions would have to be met for an October hike: Market stability, a halt in U.S. dollar appreciation, steady economic growth, improvement in the inflation picture, a statement from Yellen next week that October is a "live" possibility, a Yellen press conference and, "most importantly, the financial markets have to be discounting a reasonably high probability of an interest rate hike."
Elsewhere on Wall Street, Goldman Sachs believes a December hike is more likely, and Credit Suisse said Friday that September is now unlikely but October is a possibility.
"We are forecasting a December liftoff, although if markets stabilize in short order and the data continue to cooperate, the October meeting may prove to be a more compelling entry point," Credit Suisse Chief Economist James Sweeney and others said in a note.
The CME's FedWatch gauge now assigns just a 21 percent probability for a September move, down 24 percent from the day before and 45 percent a month ago. Traders believe December is the most likely date, assigning a 58 percent chance.
After a relatively placid seven months, markets turned violent in August as investors fretted that a slowdown in China would reverberate globally, and as anticipation built over the Fed's first rate hike since June 2006. Fed officials at one point had been teeing up March 2014 as a likely hike date, but that got pushed back repeatedly as economic data have been uneven and volatility has built up in financial markets.
Most Fed watchers believe an October hike is unlikely in part simply because there is no post-meeting news conference scheduled with Chair Janet Yellen. However, Yellen indicated back at the March meeting that a conference was not a prerequisite for a hike; one could be scheduled impromptu so she has the opportunity to explain the rationale behind the move.
Deutsche Bank is now among the few Wall Street firms to change its forecast from a September hike, and stands nearly alone in now predicting an October move.
Read More September shaping up as Fed's worst nightmare
"We expect an October rate hike to be followed by two more 25 basis-point increases at next year's March 15-16 and June 14-15 FOMC meetings," Deutsche Bank's chief economist Joe LaVorgna and others said in a note to clients Thursday. "Then, the Fed could pause in order to assess the lagged impact of modestly tighter monetary policy on economic activity."
LaVorgna believes seven conditions would have to be met for an October hike: Market stability, a halt in U.S. dollar appreciation, steady economic growth, improvement in the inflation picture, a statement from Yellen next week that October is a "live" possibility, a Yellen press conference and, "most importantly, the financial markets have to be discounting a reasonably high probability of an interest rate hike."
Elsewhere on Wall Street, Goldman Sachs believes a December hike is more likely, and Credit Suisse said Friday that September is now unlikely but October is a possibility.
"We are forecasting a December liftoff, although if markets stabilize in short order and the data continue to cooperate, the October meeting may prove to be a more compelling entry point," Credit Suisse Chief Economist James Sweeney and others said in a note.
I would have to agree that an interest rate increase in September does not seem likely. September produced the lowest Consumer Sentiment rating we have seen within the past year.
ReplyDeleteThere are many opinions on when the Fed will in fact increase interest rates. I feel there is a more compelling argument for an increase hike in December rather than October. Joe LaVorgna, Deutsche Bank's chief economist stated that seven conditions need to be met for an interest rate hike, and i’m not sure these seven conditions can be met by October.
Thank you,
Ashley Russo
This comment has been removed by the author.
ReplyDeleteI would have to agree with Lavorgna that his seven steps should be met before a tax hike. Of the seven he said the one I find most important is steady economic growth. With constant turbulence in the economic growth I feel that a hike in taxes would result in a decrease in spending and in turn a decrease in the economy, But if the economy has steadily been growing a hike in taxes might not have as catastrophic of effects, it might result in a decrease in economic growth within the months that follow but I feel there would be a quicker recovery. Where as if the hike was done this month or in October I feel that there would be a long lasting decrease in economic growth that could be avoided by simply waiting until there is steady growth for a number of months before issuing a hike.
ReplyDeleteI'm leaning towards a hike in December rather than in October. It seems to me that a lot has to be in place for an October hike and although it is a possibility for our economy to reach these economic goals I believe December would be a definite for a hike. If we rush in meeting these goals for an October hike, the economy might even suffer from that decision which is why I believe we should let the economy strengthen for an extra two months and then proceed with the hike in December.
ReplyDeleteThank you,
Mike Salmonese
I think that the hike will not take place in September but definitley will in December. There is a 21% possibitlity for September but a 58% possibitlity in December, as you can see there are higher possibilities in December. By waiting the two months the feds will have a better understanding of what chance they are taking and decide wether or not they are ready for change.
ReplyDeleteThe article states that there are no post meeting news confrences in the month of october which can lead to severe conditions. Even though Credit Suisse Chief Economist James Sweeney and others said "the October meeting may prove to be a more compelling entry point," they should have more meetings and make sure they all agree on this change before it happens. I believe that our economy will strenghten if they wait until December.
I think October is least likely for a hike. In October, there would be a long lasting decrease in economic growth that could be avoided by simply waiting until there is steady growth for a number of months before issuing a hike. A lot of consumers will not be buying in this month because it is not a holiday. December the growth will be much more steady and I believe that is when it will happen
ReplyDeleteEvan Orzolek
I agree with Lavorgna, that his seven stages ought to be met before an expense trek. Of the seven he said the one I find most critical is consistent monetary development. With consistent turbulence in the monetary development I feel that a climb in assessments would bring about an abatement in spending and thus a decline in the economy, But in the event that the economy has relentlessly been growing a trek in duties may not have as disastrous of impacts, it may bring about a reduction in financial development inside of the months that take after however I feel there would be a faster recuperation. Where as though the climb was done for the current month or in October I feel that there would be a durable abatement in monetary development that could be kept away from by essentially holding up until there is relentless development for various months before issuing a trek.
ReplyDeleteIt would seem as though an interest rate hike in September is out of the question. Because of the recent volatility in the global equity markets the Fed will likely wait and look at September to see what the fallout is of the recent market changes. Lavorgna has said there are several factors to look for in the coming weeks that will affect the Fed’s decision on a rate hike. If a majority of these conditions are met, such as market equilibrium, retail sales, and the depreciation of the dollar, we can look to an October rate hike. I don’t see the Fed raising the interest rates any time soon due to how consistently inconsistent the market has been. A hike was first projected for March 2014 and has been pushed back again and again for over a year now and I see this pattern continuing.
ReplyDeleteRiley Iafrate
Given the many facts, it seems that the interest rate hike will most definitely not take place in the month of September. The Fed even agrees because there is a loss of confidence in the economy. The article says that there are chances of having the interest rate hike in the near future but based off the feds lack in raising the interest rates I don't think it could happen anytime soon. The fed goes on to say that the market has been inconsistent for a long period of time and due to this fact the interest rate hike has been pushed back a few times, which could lead us to believe that the interest rate hike can only get pushed back farther.
ReplyDeleteIt seems to me that a hike in September is definitely out of the question. Although economists and experts thought there would be an interest hike in September I would have to disagree. While reading the facts of the article, I would have to agree with the Feds when they say that the hike most likely not going to happen. Even a interest rate hike in October is iffy to me because the article says there is no post meeting news conference scheduled, which I feel is important.
ReplyDeleteEven though they predict a 58% chance of a hike in December I'm still not convinced that it is going to happen either. The economy is very unstable and seeing that the interest rate hike keeps varying and getting posponed only makes me think it is going to change again soon.
It seems that September is out of the question when it comes to the interest hike happening. After reading about October I wouldn't think it would happen then either because there is no post meeting news conference scheduled. The month with the highest chance of having the interest hike is December with 58%. It is very hard even for the experts to predict when this hike is going to happen. I believe it is going to happen in the near future, but do pick a month is a rough challenge. The interest hikes keeps getting postponed, but eventually it has to come out and pick a date.
ReplyDeleteThe most important factor for Janet Yellon to raise fed rates is to be ahead of inflation. Current inflation is under 2% which is benign. But other economic conditions are considered regarding to the Fed rate. Just this week several economic numbers were issued:
ReplyDelete1 – Business inventories were at its highest since 2009. June inventories rose to 0.8 percent while the July inventories were up another 0 .1 percent. Inventory-to-sales were at 1.36x at recession levels.
2 – Empire manufacturing down -14.7%…prior month -14.9%
3 – Retail sales at a mediocre 0.2 percent (for back to school sales)
4 – Industrial production -0.4%
As I had indicated in my previous comments (Blanchard article) China, Japan, Canada and Brazil are having economic problems. Other world central banks have intervened and have purchased around $15 trillion in assets to stimulate their economies which has resulted in stagnant economies and has produced for some countries with negative interest rates.
During Yellons’s press conference she continued to say the labor market and unemployment rate have improved. Yes they both have improved but then why are wages still barely improving. There is a movement by some companies, towns and some cities and states to “artificially” raise the minimum wage but what are the consequences.
The next two Fed meetings are scheduled for October and December. I do not foresee any major improvements in any of the economic indicators and do not think Yellon will raise the rate those times either. Regarding to the articles consumer sentiment, if today’s consumer sentiment is disconcerting I believe Janet Yellon will wait till the beginning of 2016 to see the consumer appetite for the upcoming Thanksgiving through the rest of December holiday season.
There will not likely be an increase soon in September or October. If they increased it this month then it would lead to lower spending which is not beneficial to the economy. It would only make sense for their to be a hike after more economic growth which will make the increase less problematic.
ReplyDeleteYesterday it was announced that they would not be raising the rates and watching what happens oversees but letting the market grow stronger on its own. The 58% of a December hike seems the most likely to occur or after that.
I do not think the Federal Reserve will hike interest rates this month. I don’t think they would because in the last month or so there has been economic instability in parts of the world such as china and this leads to much skepticism in the market. The biggest fear for raising interest rates right now is that there could possibly be a reduce in consumer spending which can bring the market down.
ReplyDeleteAlthough, the last couple years have seen periods of growth, I think the Federal Reserve will likely raise rates within the next year if we reach a point of stable economic growth and if inflation rates rise slightly, because in the last year inflation has gone down which devaluates the dollar.. The near future is ideal for the Federal Reserve to raise interests rate according to most experts.
According to the article “Will they or wont they” is about the Federal Reserve decisions on whether to start the path of hike interest in September or October. I believe that hike should never take place in septeber or October. However as the article states that there is a 58% possibilities for hike in December but I am still not fully convinced that it will happen anytime soon because the economy we live In today is really no stable for the time being. However I do believe that one day this will change but we don’t know when.
ReplyDeleteIn regards to whether the Fed will increase or keep interest rates the same, both options have their positives and negatives. Raising interest rates puts more strain on banks and leads to an increase in rates for the consumer as well. This leads to a larger strain on individuals who are borrowing money and often leads to lower spending by consumers. So it hurts businesses that have to borrow money from the Federal government and it hurts the consumers. This often leads to economic decline such as recessions or depressions. On the other hand, keeping interest rates puts more strain on the government. The United States hasn't had a balanced budget in decades and is getting further and further in dept. unfortunately, interest rates are a double edged sword and something needs to be done.
ReplyDeleteI believe they will wait a month at least (I bet it will be December) rather than September or October due to slow economic growth and fear that the market will suffer a significant drop from interest rate increases.
Christopher Carapola
While the September move is less likely than the December move, it is still possible with a 21% chance. It is interesting to see that the percentage fell down from 45%. Personally I don't think it will occur in September but I think it may happen in December. The chances are much higher but it's hard to say if it will just because of how unstable the market is. The interest rate has already been pushed back, so what's to say it won't happen again? The evidence does support it most likely not to occur this month.
ReplyDeleteI specifically wanted to wait to respond until after I saw whether interest rates went up or not. since rates did not go up, I am now gonna respond with...what are they waiting for? I understand why they haven't gone up yet. But don't they understand that by raising interest rates, they would be helping the economy? I know that there are many factors involved, and they have to make sure that all of those are in place for the hike to work. I guess I just think our government is one of those to just wait, and wait and wait, until eventually 6 more years have gone by.
ReplyDeleteI agree with Goldman Sachs, where he believes on a December hike is more likely. Dealing with the financial market, where other factor matter like the unemployment rate, where we have seen a significant drop in the rate since the last couple of years, dealing with the people who are working as full time employment and part time. It continues to get better because of the introduction of new jobs, and new opportunities that the labor force hadn’t offered. As LaVorgna has said there is more of a market staidly than other recent years, and with the steady growth of the economy by the increase of opportunities. Most importantly, the financial markets have to be discounting a reasonably high probability of an interest rate hike."
ReplyDelete