Odds of a September rate hike are 50-50

The odds of the Fed hiking interest rates at next week’s FOMC meeting, which concludes on Thursday, are close to 50-50. The cumulative improvement in the economy over the past few years means that it is almost impossible to justify interest rates still being at near-zero. Nevertheless, a number of Fed officials clearly want to use the recent volatility in financial markets as a reason to delay the first rate hike yet again. If so, then a hike at either the October or December meetings would presumably follow. Regardless of the exact timing of the first rate hike, we anticipate that rising wage growth and core inflation will force the Fed to raise rates much more aggressively next year than the markets currently expect.