The one certainty about if and when the Federal Reserve will raise interest rates is that nothing is certain. The Fed decision-making process has become like a tug-of -war with the participants pulling in 10 different directions at the same time.
The complexity of the issues affecting a rates decision, one way or the other, is reflected in the fact that every time a Fed official voices an opinion, conflicting views are expressed at the same time. An example of this would be when New York Fed President Bill Dudley said on Wednesday that “at this moment” a rate hike no longer seems as “compelling” as it did. A short while after, referring to the September 16/17 FOMC meeting, he said quite clearly that a September rate increase “could become ‘more compelling’ by the time of the meeting as we get additional information.”
One factor coming out of Fed talks by different officials seems to be an almost common desire to increase rates in order to start normalizing interest rates and allowing market forces to push further economic growth.
Economists and investors alike were watching the annual get together of central bankers from around the globe at Jackson Hole, Wyoming, for indications of the direction officials might be taking with regard to a rate hike.
Fed vice chairman Stanley Fischer is on record as saying that there are two important elements to any rates hike decision, while he introduced a third element in his address at Jackson Hole. The first being that there are good indications that an economic recovery is underway and the second that inflation is growing towards the 2% “ideal” set by the Fed while the third element is an end to the volatility in global markets emanating from China.
Referring to the global market volatility, Fischer said, “it’s early to tell”, while speaking to CNBC on the sidelines of the Jackson Hole meeting. He added, “We’re still watching how it unfolds,” as he acknowledged along with other Fed officials that the global equities sell-off that started in China would influence the timing of the decision to hike the interest rate.
Former Fed vice chairman Alan Blinder says that Fed officials have made it clear that they don't want to surprise the markets when they finally make a decision. Had any consensus emerged out of the meeting, this would have been made known to the market.
Meanwhile, Blinder said in a radio interview, “If they knew, they’d already be giving strong hints. You’d have heard something from Janet Yellen pushing in the September-ish or December-ish direction. We’ve heard nothing like that from chair Yellen.”
Fed watchers appear to agree on one thing, if the financial markets don't return to stability, the Fed will hold back on a September rates increase.
A conflicting view comes from Jim Glassman, economist at J.P. Morgan Chase & Co. who thinks Janet Yellen will decide to increase the interest rate in September.
Glassman commented, “This is the most important test a central banker has faced in the past several decades.” His prediction is that the Fed Chair would increase the rates to illustrate to the markets that “there is no reason to panic.”