Markets are putting an approximately 75% chance that the Fed will back off from its plan to carry out the first raise since the financial crisis, but with a one in four chance that they will push ahead with the start of the new cycle, it is far from out of the question.
Many economists and professional investors would rather sit firmly on the fence when asked what they expect the Fed to do but Portfolio Adviser has collected a range of views from experts prepared to make a call.
Yes, the Fed will raise rates
Nick Gartside, J.P. Morgan Asset Management’s international chief investment officer for fixed income:
“We definitely think there’s a good chance that rates will go up this Thursday. The market is expecting the Fed not to raise rates but with US economic fundamentals as robust as they are, there’s really nothing preventing them from raising rates. We believe the three conditions which needed to be in place for a rate rise have all been met. These include: strong US economic data releases, a response from Chinese policy makers in light of the recent turmoil in emerging markets (which we’ve seen) and the volatility of US financial assets, such as equities and credit spreads, declining. Add these three conditions together and we think there’s good reason for the Fed to pull the trigger and raise rates this week.
“But let’s not forget the two moving parts which investors have to keep in mind. Aside from an actual rate hike, it’s all the associated commentary which we have to pay close attention to. This week’s press conference will provide much-needed context to an interest rate hike (should there be one) and all the messaging around it. The Fed will be particularly cautious at hints of future rate increases and will no doubt emphasise the point that any future interest rate rises will be gradual. This is going to be a big event for markets with the first rate rise coming after around ten years. The Fed will therefore have to be incredibly cautious with how they guide markets going forward which should help to reassure fixed income investors.
Mattias Bruér, economist at Nordic corporate bank SEB:
“Although uncertainty is elevated ahead of the September FOMC meeting, based on the strong economic outlook and the tight labor market in the US economy, our forecast is that the FOMC hikes 25 basis points.
