Rate hike this week from the US Federal Reserve

To raise or not to raise? That has been the question for a long time now for the US Federal Reserve’s monetary policy committee. Year after year, meeting after meeting, the Fed have pushed out the timing for US rate hikes. Well, it appears that the wait may finally be over this week as it looks likely they will raise interest rates for the first time in nine years.

At this stage, I am almost becoming tired of writing about the ‘will she, won’t she raise interest rates’ and I am sure some people are tired hearing about central banks. I have covered the market obsession with central bank policy ad nauseam over the last six years. I have had no choice; it is without doubt that central banks have been the predominant driver of financial markets, providing an environment that is conducive to risk-taking behaviour.

While in September I felt that the Fed would hold off on raising rates due to events in China and the financial markets, (see September 13^th blogpost) I think Janet and her fellow committee members will move on rates at this meeting. If they don’t, investors will run for the hills because they will see it as a signal of weakness in markets. Of course, Janet will talk up the “gradual path” in terms of their plans to normalise monetary policy. However, don’t rule out a reversal in 2016, QE4!