Investors and market analysts have been trying to figure out when the Federal Reserve will start hiking interest rates. However, in my opinion, the pace of the increase in interest rates is much more important than the timing.
The Federal Reserve will meet in the following week to decide about its next policy move. A rate hike this month will be the first one in almost a decade, but the possibility of this was somehow thrown into uncertainty at the end of the previous week after a mixed US employment report was released.
After the jobs data were released, market experts stated that an interest rate hike this month is a “coin flip.”
Some economists assert that instead of being a premature move that would stir financial markets, an increase in interest rates could boost confidence and somehow be liberating.
Counterintuitively, the sooner the Fed starts to increase interest rates, the slower the pace of the subsequent rate hikes will have to be. This will allow the markets to digest the changes in the current environment.
There is a pretty good case for this to occur and the focus should be on how much the US central bank will hike, rather than when it will. For sure, investors will try to parse the statement from next week’s policy meeting to get some clues regarding how fast the pace of the normalization will go.
A sign that it will move quite fast will rattle investors and traders much more than the interest rate hike itself. In my opinion, the Fed rate increase is still possible to occur next week unless there will be extremely downbeat economic data and the conditions of financial markets become more chaotic.
If the central bank of the United States decides to start increasing interest rates this month, I believe that the pace will be slower compared to previous cycles. Furthermore, I don’t think it will disrupt the expansion of the United States.