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Will the Fed lift rates this month?

By NexChange
Hedge Funds

Here’s an intriguing thought. Yra Harris, the low-key futures vet who was featured in Steven Drobny’s “Inside the House of Money,” recently opined that he thinks the Fed is going to lift rates this October.

Why? Well, apparently San Francisco Fed President John Williams telegraphed the move in his latest speech:
“Why do I think the rate increase is coming? Williams gave three hints in a speech he delivered today, ‘The Economic Outlook:Live Long and Prosper.’

1. ‘In addition, an earlier start to raising rates would allow us to ENGINEER a smoother, more gradual process of policy normalization. That would give us space to fine-tune our responses to react to economic conditions. In contrast, raising rates too late would force us into the position of a steeper and more abrupt path of rate hikes, which doesn’t leave much room for maneuver. Not to mention, it could roil financial markets and slow the economy in unintended ways.’

2. ‘I am starting to see signs of imbalances emerge  in the form of high asset prices, especially in real estate, and that trips the alert system;’ and

3. ‘When unemployment was at its 10 percent peak during the height of the Great Recession, and as it struggled to come down during the recovery, we needed rapid declines to get the economy back on track. NOW THAT WE’RE GETTING CLOSER, THE PACE MUST START SLOWING TO MORE NORMAL LEVELS. LOOKING TO THE FUTURE, WE’RE GOING TO NEED AT MOST 100,000 NEW JOBS EACH MONTH.’ [emphasis all mine]”
The man has a point. Williams’ speech, while littered with Fed speak meant to offset Yellen’s post-decision presser, is absolutely hawkish at its core. And the fact that he’s one of the FOMC’s members should make it something more of note. Timing however was not quite apparent, though Harris does have a compelling reason for October:
“I say October because I believe December is too late as year-end funding issues will cause unwanted volatility in the REPO MARKET.”
It’s still a little too early to call though. Federal fund futures are still giving a 2015 hike the thumbs down, but the FOMC minutes are coming up tonight and that could change the entire ball game. Stay tuned.
Photo: Anne-Lise Heinrichs

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