Global investors
are watching closely whether or not the Fed will raise interest rates for the
first time in close to a decade at a two-day policy meeting that begins today (Wednesday,
September 16, 2015). The most recent Fed Funds futures imply less than a 30%
chance of a rate increase this week; however, I believe they will raise rates
by ¼ of a point.
I believe it is time to start gradually raising interest
rates given that in the United States we have seen the job market that has
achieved sufficient recovery – and more importantly, the Fed needs to been seen
as long-term focused and consistent in their policies. The Fed has said for
years that the decision to raise rates would be supported by long-term data
(not short-term volatility) and that the summer of 2015 was when they felt
comfortable raising rates.
The other side of the argument is that interest
rates should remain at their current level in the midst of the recent global
stock market turmoil and China's apparent economic slowdown. And the argument
is that inflation remains well below the Fed’s 2% target level. The Fed's highly
watched decision is expected to be announced by Janet Yellen (Fed Chair) on Thursday
at 1:00 pm CST.
Most investors are leaning toward the view that interest rates
will remain on hold for at least another month; however, if Fed officials raise
interest rates this week it will likely lead to a stronger U.S. dollar and more
money could be drained from emerging markets. While that might be the case, I
believe the Fed needs to begin the process of returning normalcy to the global
markets by beginning the movement back to market determined interest rates. We’ll
see what they decide tomorrow!
