The FOMC, the Fed’s policy unit, meets next week on Tuesday and Wednesday. There is little chance that they will raise interest rates at the meeting. First, raising interest rates just as the debt ceiling is roiling the market isn’t a good idea. Second, there isn’t much new economic data since the last meeting on September 16th-17th and there is no post-meeting press conference scheduled. Despite these reasons, right now there is an unusual amount of debate and discussion about Fed policy.
The FOMC is data-driven, its decision on raising interest rates, whenever it happens, will depend on how the economy looks at that time. The question of what they might do in at the December 15th-16th meeting depends on the economic reports appearing between now and then. Moreover, as the economic numbers change, so do people’s opinions of the future. There is a lot of uncertainty and noise in forecasts of the Fed’s next move. Currently the noise level is increased because of apparent disagreements among members of the Fed Board of Governors. In the last few weeks, Stanley Fischer argued for raising rates sooner while Lael Brainard and Daniel Tarullo spoke in favor of waiting longer and everyone is trying to guess Janet Yellin position.
Will the Fed act in December? If we knew what the future data will reveal and how people would react, we might have an answer. What is likely is that until then the markets will see extra uncertainty even though the debt ceiling will have been raised.