Will The Fed Hike?
The most anticipated, discussed and fretted about meeting of the Federal Reserve Open Market Committee (FOMC) is rapidly approaching. That meeting will answer the one singular question on every investors mind – will the Fed hike interest rates?
The chart below shows that the Fed has maintained near zero overnight lending rates for a period longer than any other in history.
The consequence of extremely accommodative monetary policy has been a blistering run-up in financial asset prices as “savers” were forced to chase yield in higher risk areas. However, there has been little translation through the real economy that has continued to limp along.
It is worth remembering that the Federal Reserve uses monetary policy tools in an attempt to foster full employment and maintain price stability. In other words, the Fed lowers interest rates to stimulate economic activity and spark some inflationary pressures. The raises interest rates when the economy begins to accelerate too quickly, and inflationary pressures are building to a point that it becomes a detraction to economic growth. The chart below shows the Fed Funds rate as compared to CPI.
In the late 90’s Alan Greenspan began an interest-rate hiking campaign as inflationary pressures were building