Will they or won't they? Analysts mull odds of Fed rate hike

AP News
|
Posted: Oct 28, 2015 4:14 PM

WASHINGTON (AP) — The Federal Reserve on Wednesday once again put off a long-awaited interest rate increase.

But the Fed threw out a tantalizing clue for the next time it gathers in December: It said it would consider a hike "at its next meeting" — the first time in seven years of record-low rates that the Fed has raised the possibility that it might raise its benchmark rate the next time it met. The Fed has kept that rate near zero since December 2008, at the depths of the Great Recession.

The Fed's policymakers sounded less concerned than they did at last month's meeting about economic problems around the world, notably in China. They did signal a note of concern about the U.S. job market, observing that "the pace of job gains slowed."

Fed watchers immediately went to work trying to interpret the Fed statement. Some of their comments:

___

Stephen Stanley, chief economist at Amherst Pierpont, said he was "extremely surprised at how hawkish" the Fed sounded in its statement Wednesday — meaning inclined to raise rates. "My read of the October statement is that the Fed is putting everyone on high alert that a rate hike in December is the most likely scenario," Stanley wrote in a research note.

___

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said that before Wednesday's meeting, investors had collectively put the likelihood of a December rate increase at 30 percent. "We believe the number is now closer to 50 percent," LeBas wrote in a note to clients.

___

Patrick O'Keefe, director of economic research at the accounting firm CohnReznick, says he's unsure whether Wednesday's statement makes a December rate hike more likely. He noted that Fed officials had previously suggested that they'd raise rates this year. "The economy is not cooperating," he said. "It has to be immensely frustrating ...The global economy is still decelerating and we're seeing a softening of growth domestically."

___

Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer, said, "The Fed sent its clearest signal yet that, pending decent data, it has the December meeting in its sights for the first rate hike."

___

Paul Ashworth, chief U.S. economist at Capital Economics, predicted that "everything will come down to the incoming data between now and mid-December ... Our view is still that the November and December employment reports won't be strong enough to convince a majority of (Fed) members to back a rate hike, but December isn't completely out of the question."

___

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate increase if the jobs reports for October and November improve over September, when hiring slowed.

"Some combination of payrolls, unemployment and wages signaling continued improvement will be enough," Shepherdson wrote in a note to clients.

___

Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said "it looks like they are very, very close to pulling the trigger ... Our bet is unemployment will indeed fall two-tenths further to 4.9 percent by the December meeting, giving the Fed the green light to liftoff at the final meeting of the year."

___

Diane Swonk, chief economist at Mesirow Financial, said the Fed had "reopened the door to a December rate hike. The statement surprised many by affirming the strength of the U.S. consumer, a necessary component to carry the economy through the turbulence emanating from abroad."