A survey done by Wall Street economists reveals that markets may convulse if Janet Yellen, he chairperson of the Federal Reserve takes the decision to up interest rates in September. Approximately 85 percent of the respondents believe the head of the Fed will not take such a decision. This skepticism among economists could concern the higher echelons of the Fed. They have spent many numbers of days in August trying to make the financial markets understand that an increase could be a possibility after the meeting tomorrow.
The idea that the Federal Reserve will tighten its policy has been largely thrown out due to US economic data. Growth of jobs has been much slower in August. Earlier, policymakers in the Federal Reserve had projected four rate rises in 2016. Only 13 percent of 46 economist respondents surveyed by Financial Times predicts an upswing in key interest rates in the short term in central bank in September.
The unemployment rate in the United States is less than five percent and the Brexit fallout has been dampened. The only noticeable change was that the financial markets were rudely awakened from many months of complacency. The markets are already spooked, with two comments made by two voting members concerning the policy setting committee of the Fed leading slide of US bond and stock prices. The fall has been the biggest since June.
A few economists, however, believe that the willingness of the Fed to take action this month will actually be underestimated. If one goes by the words of Goldman Sachs economists, the recent communique by the officials of the Federal Reserve to signal another hike in recent times can be construed as appropriate. They believe that the market has become complacent for its own good.
According to Lael Brainard, a policymaker of the Fed, there is a risk that Yellen could give a speech with a hawkish tint. He went further to add that if the Chairperson wants to up the probability of the rate hike, this speech can be an excellent opportunity to do so. If that happens, then it could strike a fatal blow to the fixed income rally that happened this year. The rally was slowed in the recent weeks due to speculation that the unconventional policy by Bank of Japan will be reviewed very soon.