The Federal Reserve is expected to announce a continuation of raising interest rates after their September meetings as U.S unemployment remains low and growth rates continue to rise. During the meetings, which are scheduled for September 25th & 26th, Fed officials are expected to raise the benchmark fund rate by 0.25% (2% to 2.25%), continue to off-loading assets from the balance sheet purchased during and after the financial crises, as well as reword their post-meeting statement of “accommodative,” a word which has been present since the beginning of the 2008 monetary stimulus program.
Economists such as Quincy Krosby, Chief Market Strategist at Prudential Financial, believe that the Fed is maintaining a “trajectory towards normalization,” levels that neither spur nor hamper economic growth. However, many are still unsure of how to interpret the Fed’s removal of the word “accommodative” from the post-meeting statement. While some interpret this as “hawkish,” others view this as “dovish.”
Nevertheless, U.S. economist for Capital Economics, Andrew Hunter, is of the opinion that the gradual ramp-up of interest rates will significantly hamper growth in the economy. He argues that as monetary policy continues to tighten and the effect of the fiscal stimulus begin to fade, a slowdown in the economy is imminent. This slowdown will eventually force the Fed to withdraw from further rate hikes and ultimately “reverse course.”
However, the one thing that is assured is that the two meetings will provide investors an opportunity to adapt their long-term strategies, as the meetings will grant an indication of how Fed officials view the state of the economy.