All eyes will be on the Federal Reserve this evening, who are set to announce their latest policy decision after weeks of speculation over whether Yellen will introduce a rate hike.
Several Fed members have spoken out this month on either side; Lael Brainard urged caution last week, in favour of waiting until inflation moved nearer the bank’s target, but others such as Vice Chairman Stanley Fischer have recently come out in support of a September rate rise.
Disappointing August jobs figures lowered the probability of a rate hike, increasing by just 151,000 after a hefty July figure of 275,000. Economic growth has averaged just 1 percent over the first half of the year and Institute for Supply Management readings on manufacturing and service sectors showed contraction in August.
Janet Yellen herself dampened hopes for a rise at her speech in Jackson Hole, Wyoming at the end of August. Although saying that the case for a rate rise had “strengthened in recent months”, she failed to announce any definite movements. She said she appreciated keeping rates low may “inadvertently encourage excessive risk-taking and so undermine financial stability”, but listed a range of other policies that were designed to stimulate the economy for time being.
Analysts are mixed on whether Wednesday will finally be rate rise day. Diane Swonk, chief economist at DS Economics, said, “they will want to prepare markets so that when do they move, it will be an almost non-event.”
Bloomberg are leaning away from a hike today, but teams of analysts at both Barclays and BNP Paribas have said they believe the Fed will lift rates. Oxford Economics sees a 40 percent chance of a move.
On Twitter, Obama’s Director of the NEC Lawrence H. Summers wrote:
Fed should not raise rates b/ the economy is sign. weaker & inflation expectations weaker than when it erred (judged expost) last Dec. 7/11
— Lawrence H. Summers (@LHSummers) 21 September 2016
Fed should get off the idea credibility requires raising rates now, Dec or at any point b4 inflation expectations are accelerating. 8/11
— Lawrence H. Summers (@LHSummers) 21 September 2016
Wall Street pushed higher after market open, ahead of the announcement at 2pm ET and propped up by the Bank of Japan’s reboot of its monetary policy. Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey, told Reuters:
“The BOJ made some dovish comments and that has given investors an early push on the likelihood of no action from the Fed.
“However, we could see a violent reversal of early-morning fortunes after hearing what the Fed says about future rates.”
The Fed will issue a policy statement on Wednesday afternoon, followed by a press conference with Janet Yellen.