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Fed is closer to a September rate hike than many think
WASHINGTON (MarketWatch) — The Federal Reserve is getting more comfortable with the plan to raise rates in September than investors now realize, according to a keen outside observer of the U.S. central bank.
The result of the Fed’s meeting next week is likely to be that “they are going to be much more comfortable than many people imagine going in September,” said Tim Duy, an economics professor at the University of Oregon, in an interview.
Duy previously monitored what the Fed said and did for his superiors at the U.S. Treasury Department. Now he does the same thing from his perch in Eugene, Ore., and his FedWatch blog is must reading for those interested in following U.S. monetary policy.
In the interview, Duy said that Fed Chairwoman Janet Yellen is turning out to be not so dovish as many people expected. The Fed is not terribly worried about low inflation, he said.
MarketWatch: When do you think the Fed is going to start raising interest rates?
Duy: I think that there is a reasonable chance, at least 50%, of September, and, if not, they will end up going in December.
MarketWatch: Not October?
Duy: Not October. I think that, as you know, the Fed says every meeting is a live meeting. That said, most of us don’t believe they would do their first interest-rate hike without a scheduled press conference. And so that seems to take October off the table and leave us with September and December. Is that great reasoning? No. Is that the reasoning the Fed has led us to by their prior actions? I would say yes.
MarketWatch: Explain why you think they’ll move in September.
Duy: I do think that they would have liked to raise interest rates in June if they had gotten the all-clear [signal] from the data. Had you not had that slowdown in the first part of the year, had you not had the unsettledness with the value of the dollar and the price of oil, I think the Fed was gearing up for a June rate hike and in a sense missed that opportunity because the data turned against them. They needed time to wait it out and see how much of that was transitory and how much of that was persistent. And I think they are concluding that much of that was indeed transitory. I do think they will need another six weeks of data to confirm that. And that’s another reason why next week is pretty much off the table from a rate-hike perspective. They need another six weeks to confirm the path of the data, essentially, and I think they are going to be much more comfortable than many people imagine going in September.
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