To Hike or Not to Hike: Experts Debate Future of Fed Rates

By J. R. Duren | 14 September 2015 |

Earlier today, ABC reporter Stephen Letts posed a question that many in the finance world have been debating for quite some time now: Will the U.S. Fed raise interest rates this month?

The question comes on the heels of several years of relatively positive growth in which the United States has managed to pull itself out of the Global Financial Crisis and make modest gains in jobs and housing.

While job creation still remains rather tepid, the U.S. employment market is in much better health since it dropped 750,000 jobs in 2008 just weeks before the Federal Funds Rate dropped to between 0 and 0.25 per cent.

RBC: Maybe

Royal Bank of Canada (RBC) said whether or not the economy reaches the “lift-off” point at which the Fed will raise rates depends on how the Fed views two important factors: economic fundamentals and financial market conditions.

RBC was quoted as saying that recent employment numbers have helped the U.S. clear the economic fundamentals requirement, but instability in the Chinese stock market has raised concerns that the global financial conditions aren't steady enough to warrant a rate raise.

Life Hacker Australia: Yes

Life Hacker financial reporter Lee Smales predicts that the U.S. Fed will raise rates “25 basis points” just like it did in the months following the country's Hurricane Katrina disaster in 2005. His prediction comes despite apprehension over China's fluctuating market.

The Futures Traders: Probably Not

Over the past few months, futures traders' opinions about the Fed's rate raise have been tracked. The data says that while opinions have reached 55 per cent in favour of the Feds raising rates, they currently sit at 33 percent. In other words, about 7 out of 10 futures traders believe the Fed won't raise rates at the predicted rate of a quarter of a percent.

What A Rate Hike Means for Australia

Life Hacker's Lee Smales said a rate raise by the American Federal Reserve will result in several changes in the Australian financial markets.

His primary assertion is that Australia's stock market will suffer. He bases his opinion on historical data  from the correlation between the American stock market performance and Fed rate hikes. Usually, the stock market takes a hit when rates go up. If the American stock market falls, Australia will follow suit, he said.

“The inter-connectivity of global stock markets would suggest Australian stocks will follow US stocks lower,” Smales wrote.

A rate hike would also mean that the Australian dollar would continue to struggle against its North American counterpart.

What's Your Opinion?

Experts cross the global financial industry expect the Fed to announce their decision this Thursday. As the big day approaches, what are your thoughts? Do you think rates will go up or say the same? In the meantime, click on any of the links above to read up on what the experts are saying.

Photo Credit: Perpetual Tourist, Flickr Creative Commons