By: Brian J. Meli
In a few weeks, the Federal Reserve’s Open Market Committee (FOMC) will meet to decide whether to raise short term interest rates for the first time since 2006; a decision that could have wide-ranging implications, not only for the stock market and the broader economy of this country, but for a world economy that, many believe, is showing signs of turning over.
The fact that the Federal Reserve is contemplating such a move comes as a surprise to exactly no one. For the better part of a year, even causal market observers have been anticipating a rate hike; with everyone from retired pensioners to veteran money managers hanging on the Fed’s every word. This heightened state of awareness owes to the fact that the Fed’s zero interest rate policy (ZIRP), has been widely credited with helping pull the U.S. economy back from the brink of collapse, and with bringing about the sustained stock market advances we’ve witnessed since the spring of 2009. The fear is that a rising interest rate environment will slam the brakes on, and even reverse, that progress.
There’s even a name for this interest rate mania: FedWatch. And if you care to, you can see what the experts are calculating the odds of a rate hike to be in real time. Or you can visit the Fed statement tracker to try and divine the Reserve Board’s thoughts from its last eighty or so official statements—each one conveniently marked up to show how it differed from the last. Whatever you call the current obsession with basis points, it has put the Federal Reserve Board of Governors under an intense public spotlight; one that only glows brighter and hotter the longer it keeps the federal funds rate at zero.
All this incessant debate, speculation and grousing over the words of five enigmatic economists deliberating inside a secretive Washington enclave, represents a degree of scrutiny unparalleled for a body of unelected appointees.
Or does it?
Continue reading →