I can’t remember ever seeing so much attention devoted to one Federal Open Market Committee meeting.
This week, the Financial Times allowed readers free access to its online edition, and in it there was a prominent feature that delivered all-you-can-eat Fed analysis.
And while there seems to be a nearly endless barrage of speculation on what the Fed is going to do when it meets next week, all this speculation certainly is understandable … given the stakes.
What’s at stake here is nothing less than the future direction of monetary policy, the economy, the domestic equity and bond markets, global equity and bond markets — and the fate of nearly every American’s pocketbook.
While that may seem like hyperbole, it’s really not.
We’re in an era of artificial "juicing" of the financial markets by central banks around the globe. So, a move by the biggest and most-influential central bank to put the brakes on the monetary racecar could cause the entire global economy to stall out.
That won’t be good for any of us. But it will be particularly hard on investors who are relying on stocks and bonds to fund their retirements.
In Friday’s Wall Street Journal, there was yet another article with Fed meeting speculation. But this one was noteworthy because it presented the results of the latest WSJ survey of top economists.
According to the survey results, most economists predict the Fed will stay on hold in September.
Here’s what the WSJ survey found:
• 46% of economists surveyed predicted the Fed would hike rates at the Sept. 16-17 policy meeting
• 9.5% said the Fed would wait until the October meeting to hike rates
• 35% said the first rate increase would come in December
• 9.5% said the central bank would wait until 2016 before raising rates
Taken together, the no-September-rate-hike camp represents 54% of business and academic economists surveyed.
If you recall, the conventional wisdom at the beginning of the year suggested that the U.S. economy would continue to improve … enough so that the Fed would greenlight a summer rate hike.
As the WSJ put it:
At the beginning of 2015, most economists thought the Fed would raise rates by midyear. After an economic slowdown in the first quarter, predictions for the first rate increase coalesced around September.
But turbulence in financial markets and worries about China’s economic slowdown raised doubts in recent weeks about whether the Fed is ready to begin raising its benchmark Federal Funds rate, which has been pinned near zero since December 2008.
Now the conventional wisdom is calling for no rate hike.
But, what if the "experts" are wrong?
Given the consensus that there will be no rate hike next week, if we do get one, I suspect that all hell is going to break loose in the markets.
One reason why is because the expectation of "no hike" has caused tension to build up for traders. Like a loaded spring, if that tension is suddenly sprung, we could get a violent reaction that would cause stocks to plunge precipitously.
I certainly have my guard up against a "surprise" Fed lift-off move.
Given that next week is going to be perhaps the most-important week of the year for stocks, bonds, commodities, monetary policy and the economy, we will of course be watching the action with bated breath.
Until then, remain cool and collected — and please continue to allow us to help put all the action and reaction into perspective.
So, do you think the Fed is going to raise rates next week? What do you think will happen if they do?
U.S. stocks finished this 9/11 anniversary on a positive note, as the major averages all managed to log modest gains Friday, and solid gains for the week.
For a poignant take on the meaning of 9/11, and why we all must never forget, check out my colleague Jim Woods, writing for the Sound Dollar Campaign.
Also in the news today …
• Oil prices went back to their falling ways Friday, with futures settling under $45 a barrel. Oil was down about 3% on the week.
• Adding to oil’s woes was Goldman Sachs (GS), which cut its price forecasts and warned that the market’s surplus of crude supplies may push prices near $20 a barrel.
• Stocks in Asia saw their first weekly gain since July. The Shanghai index added 1%, and Japanese stocks helped to lead the MSCI Asia-Pacific index higher by roughly 2%.
• Serena Williams lost her U.S. Open semifinal match against Roberta Vinci, ending the great champion’s quest for the elusive calendar year Grand Slam.
• Louis C.K., Steve Buscemi, Whoopi Goldberg and other sports, music and Hollywood stars took to the trading floors for Cantor Fitzgerald’s charity day. The company, which lost roughly two-thirds of its employees in the 9/11 attacks, raises money in their honor for a wide range of charities.
• If you’re eager to pre-order your next Apple (AAPL) iPhone, the company starts taking pre-orders at 12:01 a.m. Pacific time on Sept. 12. So, be sure to take a nap or enjoy some extra coffee tonight!
Good Luck and Happy Investing,
Uncommon Wisdom Daily