The Federal Reserve’s (FOMC) meeting will be taking place on September 16th and 17th, and it had long been expected that this was when the Fed was going to raise the federal funds (fed funds) market target interest rate. The Fed has been targeting the fed funds rate between 0.0% and 0.25% since the December meeting in 2008 after the financial crisis began to really take hold. After the June 2015 meeting, the Fed released projections submitted by the members of the FOMC, and 15 of the 17 participants estimated that rates would increase in 2015, with 10 estimating that the rate would be higher than 0.5% before the end of the year. While there are two more meetings this year, if the Fed does not act to raise rates now, it is very unlikely that this forecast of higher than 0.5% could be met. Most economists believe that the Fed will actually not change rates this coming week, but those surveyed are pretty close to evenly split.
Several Wall Street analysts disagree on what might happen next. Some believe the global economic situation is in a difficult state, and that the Fed should not increase rates yet. Others believe that the economy is healthy, and that we are long overdue for an increase rates. However, oil prices have fallen dramatically since the July meeting, the Chinese economy and stock market are struggling, and China has been unloading US debt in order to help pay for corrective measures. Furthermore the US stock markets are down nearly 10% since their recent all-time highs, and have recently been extremely volatile. International factors may or may not play a role in moving the Fed’s hand, but global volatility and general weakness make it a potentially difficult time to raise rates. Goldman has recently reported that they believe financial markets are already tight enough that it is equivalent to three rate increases. On the other hand, the unemployment rate has fallen to 5.1%, and the US by itself is not doing all that poorly other than the volatility in stock markets.
Questions you might try to answer:
Remember, don’t try to answer all of these questions, just focus on one, provide some evidence, and support your opinion. NOTE: There is a delay between you posting your comment and it appearing, since I have to approve all comments by hand. Make sure you save your comment in a word processor file before posting it here. I cannot help you if “the ether” ate your homework.
- What do you think the Fed is going to do next week? (If it already happened by the time you post, clearly a prediction is not in order). By this, you should not just say “I think this…” without providing some evidence to support your opinion. If you think the Fed should stand pat, or raise (lower?) rates, or do something else then you need to point out why.
- If you think what the Fed does next week really does not matter in the grand scheme of things, what do you think should be done from a monetary policy perspective that would help the economy?
- Should the Fed pay attention to US only factors, or global factors when making a decision like this? What is the expected impact of this change on other markets that are also currently weak? Do you think the recent changes in Chinese policy will have much of an affect on the Fed’s decision if any?
Tip: Do not capitalize all the letters of “Fed” since it is not an acronym. This really bothers me…