Will the Fed raise rates next week?

Blog posted On September 14, 2017

The Federal Open Market Committee (FOMC) is scheduled to meet next Tuesday and Wednesday.  Markets are expecting the FOMC to leave rates on hold after this meeting.  In December 2016, Fed Chair Janet Yellen projected three rate hikes in 2017.  Since then, the Fed has raised interest rates twice, in March and in June. 

Some Fed officials have expressed concern that current inflation levels do not warrant further rate hikes.  Fed Governor Lael Brainard compared the low unemployment rate to the last time the economy neared full employment over ten years ago.  Currently, the three-year average for inflation is 1.5%, much lower than 2004 to 2007’s 2.2%.  She assessed economic conditions at the Economic Club in New York, “I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective.”

Minneapolis Fed President Neel Kashkari has been a more outspoken critic of Fed policy.  In June, he was the only voting member to vote against June’s rate hike.  He blamed the past year’s rate hikes on slowed inflation and job growth.  During a speech at the University of Minnesota in Minneapolis he stated, “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.” 

Currently, most market analysts are not expecting a September rate hike.  According to CNBC, some traders are postponing rate hike expectations until June of next year.  Following Wednesday’s meeting, Fed Chair Janet Yellen will hold a press conference. 

Sources: Bloomberg, CNBC, CNBC, Seeking Alpha