The Federal Open Market Committee is now expected to raise interest rates next month, which would mark the first rate hike in December in 16 years. Economists who closely scrutinize the wording of the FOMC statement to predict the Fed's action at the next meeting believe the continued use of "measured" to explain the removal of policy accommodation strongly suggests another 25 basis point bump up next month, according to Dean Maki, economist at JPMorgan Chase.
As widely expected, the FOMC raised its target for the Federal Funds rate by 25bps to 2% at last week's meeting. And as usual, more important than what the Fed did was what it said, as economists dissect the accompanying statement word-by-word to predict what the policymaker will do in the future.
The FOMC has avoided raising rates in December because of concerns that a rise would hurt markets that are more illiquid at the end of the year, as well as to avoid hanging the Grinch label on Chairman Alan Greenspan. However, the statement's rosier view of labor conditions supports the theory that the economy can handle increased tightening of interest rates. In addition, the December meetings have been moved up a week to around Dec. 14 in recent years, Maki said, reducing the risk of affecting markets at the very end of the year.
