Contradictory signals on the Fed’s Rate Hike

Reading the news about the rate hike about which everyone knows it will take place someday but doesn’t know when is somehow irritating. In the first days of May 2015, there has been a short-lived beginning of consensus that was building up and said that the rate hike was going to happen between now and September 2015. At the end of May 2015, the burgeoning consensus has vanished because of divergent interpretations over the US GDP growth and consumer sentiment. For some people, the upcoming rate hike would explain in part why the US GDP growth has disappointed. “Instead of inching up at an annual rate of 0.2%, real gross domestic product contracted at a rate of 0.7%,” wrote Barron’s.

For others, the anticipated rate hike “will spur economic growth” by fueling consumption because “if you raise interest rates, it actually puts a value on time, and so people can’t wait as long as they would normally wait,” UBS economist Drew Matus told CNBC. On the contrary, Minneapolis Fed President Narayana Kocherlakota doesn’t see “raising the target range for the fed funds rate above its current low level in 2015 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering.”

Yet the US job growth’s rebound keeps a 2015 rate hike in play, wrote Reuters. Up to now, the best available information is the same for everyone, including San Francisco Fed president John Williams, namely that the Fed will raise the interest rates “later this year” or won’t. What one can be sure about is that this rate hike will indeed be the monetary policy question of the 2010s since it will be the first rate hike ever for a significant portion of the market makers and operators. One has been so used to a Fed’s policy in favor of the financial markets that any slight change in the Fed’s attitude may trigger greater feverishness.