The Federal Reserve faces something of a timing dilemma: Should it raise interest rates in early November or mid-December? Or at all?
Some members of the Federal Open Market Committee (the folks who have an official vote) have been eager to raise interest rates, but they’ve been overruled by a majority of their colleagues. At the same time, it appears a growing number of central bank officials are ready to hike rates before 2016 closed. Last time they did it, financial markets recoiled wildly before settling down a few months later.
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November or December?
On the one hand, they risk appearing to be interfering with the election if they raise rates at the meeting concluding this week. It isn’t as much about the appearance of the rate timing as it is concern that the election is followed by a nasty stock market sell-off which could harm the economy.
On the other hand, while they risk looking like the monetary policy equivalent of Grinches who stole Christmas if they wait until the meeting set for Dec. 14-15, that does appear to be the most likely outcome.
“I do expect that the (November) statement will hint quite strongly at a move in December by saying something like, ‘A rate hike by the end of the year is possible (or likely or whatever)’,” says economist Joel Naroff.
Recent data helps make the case
Whether looking at the Beige Book report prepared for this week’s meeting or other more recent data, such as third-quarter growth rising at an annual rate of 2.9%, the economy appears to be capable of absorbing a modest rate boost. Still, the recent acceleration is the exception, …