Investors are sitting on tendrils as the Federal Reserve meeting takes off today. By the end of the two day session, the world will know whether the proposed interest rate hike will be implemented or will be postponed for some time in the future.
The last time the Fed raised rates was in June 2006 when they peaked at 5.25 percent. This was followed by 10 successive cuts over the next seven years, keeping rates consistently between 0 and 0.25 percent.
The long awaited rate hike has been touted as either a panacea for many of the world’s financial woes or the straw that will break the camel’s back in global finance. J.P. Morgan economist Michael Feroli describes the "hike/no hike" decision facing the Federal Reserve this week as essentially a ‘coin flip’.
Big traders are standing on the sidelines, uncertain as to what actions to take. Many believe that a rate hike will indeed happen and major selling has already begun. According to Lipper, investors redeemed more than $16 billion from equity mutual funds and ETFs through the end of last week brining the three-week total to a net outflow of $30 billion.
The futures market, however, continues to believe that the near-0 percent interest rate policy will be maintained due to global market turmoil.
Time to Normalize
According to Feroli, recent economic data present a “clear case for the Fed to begin the normalization process" and one former policymaker-turned-bank chairman stated that the U.S's recent positive economic data showed a rate hike was definitely in the cards.
According to Axel Weber, now chairman of UBS and formerly president of Germany's central bank "The underlying economic data in the U.S. warrants a rate hike. The U.S economy can stand it. The U.S. economy in my view actually needs it medium- to long-term and I'm pretty convinced that the U.S. will see a rate hike, most likely in September."
The end to months of uncertainly has finally arrived and a major financial decision is about to take place.