The CME Group’s FedWatch Tool is predicting a 72.3 percent chance of a rate hike on Wednesday and that may be the most optimal move, according to Dan North, chief economist at Euler Hermes North America.
“I think it’s still the most likely case that they’ll hike by 25 basis points. I think it’s pretty hard for them to back out at this point,” said North.
North posits that even if the Fed were to keep rates unchanged, this would cause even further turmoil in the capital markets.
“It’s a bad signal to the market if they were to change their mind,” North said. “It shows that the Fed thinks the economy’s at a greater risk than previously thought.”
As such, North feels the best move would be to proceed with the rate hike and as Colas suggests, communicate the message of less rate hikes to come in 2019.
“There’s a price to not following through. However, it sure looks like from action in the bond market in particular it would be well worth a pause now,” North said. “What’s going to be key for them is to change the statement and the ‘dot plot’ markedly.”
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