Odds of a September Rate Increase are Roughly Even

Will the Federal Open Market Committee raise the Federal Reserve’s target rate when it convenes in September—or will it delay until the year’s closing sessions in October and December? With unambiguous forward guidance, the answer to the question would be well understood. As it stands, the Fed has little incentive to make commitments that would impinge upon its flexibility in setting timetables. The imagined abstruseness of Fed officials’ statements has given rise to entire industry of contextualizes and soothsayers. 

After a protracted period of inertia by the central bank, the data upon which the Fed is ultimately dependent are weighing in favor of a move. I would argue this has been the case for some time. In the early stages of the recovery, prevailing monetary policy was an appropriate response to crisis conditions and their immediate aftermath. Those crisis conditions no longer exist. As a result, low yields on the risk-free investment have coincided increasingly with an appetite for risk, with the effect of pushing asset prices higher.