FINAL COUNTDOWN: Here's what 17 experts are predicting for Fed rate hikes

9/16/2015

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There is no consensus among economists regarding when the Federal Reserve will raise interest rates.

Some believe it'll happen on Thursday when the Fed concludes its next Federal Open Market Committee (FOMC) meeting. Some believe it'll happen in October. Other believe it'll happen in December. And then there's the very few who think we'll have to wait until 2016 to see a move.

One thing is clear: no one has a very high conviction or a particularly convincing case for their call.

The Fed brought its benchmark fed funds rate target to 0.00%-0.25% in December 2008 in its effort to stimulate growth and inflation in the wake of the global financial crisis.

The question now is if the economy is ready for higher rates.

We thumbed though the notes and compiled the predictions from 17 Wall Street firms. Below you'll find their calls and snippets from their research. We'll find out who is right and wrong on Thursday afternoon.

First of all, here's a look at the Fed's near-0% rate, which will soon come to an end.

UBS

Projected timing of rate hike: SEPTEMBER

On the timing: "September has three advantages. 1) It offers a compromise between hawks and doves, getting one rate hike "out of the way" without committing the Fed to more. 2) It provides optionality for those who anticipate that more than one hike this year would likely be appropriate (10 FOMC members, or the majority of the committee, as of June. Though likely there are now a few less). 3) It avoids any risks resulting from policy changes around year-end, when bank funding issues tend to become more complex," said economists Drew Matus, Samuel Coffin, and Maury Harris.

Reasons for call: "We continue to believe that, once the Fed moves, economic conditions could improve, prompting further moves by the Fed. At the same time, we believe that the fact that both unemployment and inflation tend to lag economic activity and to move in trend-
like fashion helps to explain why past Fed rate hike cycles have evolved as they have in the past."

BANK OF AMERICA MERRILL LYNCH

Projected timing of rate hike: SEPTEMBER

On the timing: "The Fed doesn’t want to hike in the midst of a correction and exacerbate a selloff. At the same time, Fed officials know the dangers of being beholden to the markets. Thus, in our view, the FOMC will need to see signs of a significant disruption in financial markets to preclude a hike — which remains a risk. Conversely, a relative sense of calm should allow liftoff in September," said economist Michael Hanson.

Reasons for call: "Some market participants wonder whether the Fed is stuck in a catch-22: any indication it may hike generates an adverse market reaction that precludes an actual hike. They cite the recent jump in the VIX, which briefly put it more than two standard deviations above its long-run average level (Chart 3). But Fed officials have been warning for some time that they expect some greater volatility as markets come to grips with liftoff. Thus a modest sell-off alone is unlikely to stop the Fed."

See the rest of the story at Business Insider

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