Authored by Michael Lebowitz via Real Investment Advice,
Heading into the September 16 FOMC meeting, the debate over whether the Fed should raise rates or hold is heated. To help you appreciate the range of views, we present this article as a courtroom exercise. We will let the prosecution make its case for a rate hike, and the defense make its case for a hold. We will render our verdict after both sides present their cases.
To set the stage, Fed funds futures are pricing in a 60% chance of a September rate hike, with further hikes possible at subsequent meetings. The graph below shows the market is pricing in a 36% chance of two rate hikes by mid-March 2027, with roughly equal 25% chances of three hikes or only one.
The Prosecution's Case: Rate Hike
With the strong August BLS employment data, the case for a hike now has three legs.
The first is Fed Chair Kevin Warsh's Jackson Hole address on August 28. His policy-related comments were direct: he wants to restore credibility to his pledge to get inflation back to 2% in short order. Below are comments we wrote in Warsh Makes A Hawkish Pivot:
Warsh was blunt in his assessment of inflation. He signaled the Fed may not be done fighting inflation, saying financial conditions didn't look restrictive enough
