When I have to answer that question, I turn to the experts, like the trained
economists who work for some of Canada's biggest banks. Now we know that the
U.S. Federal Reserve raised the benchmark interest today by one quarter of
one percentage point. But is this it? Are interest rates going higher?
Well, it depends on who you ask. Here are the subject lines of two e-mails
that landed in my inbox right after another within minutes of the Fed's
announcement:
- Scotia Capital Research: Fed moves towards a
pause- [BMO Nesbitt Burns] The Bottom Line: Fed Raises Rates and Signals More
to Come
The two economists in this case are Ladak Zubair at Scotia Capital and Sherry Cooper at Nesbitt Burns.
Now economists are paid a great deal of money to read between the lines of
central bank press releases. When central banks raise or lower interest
rates, they do so only in the form of a carefully worded press release.
There is no press conference. No chance to ask questions or clarify a point
or two. As a result, economists have to try and guess what kind of thinking
went into the press releases.
So here's Ladak Zubair at Scotia Capital:
… the Fed's statement opened the door to a near-term “pause” a
little wider, but for now the bias to raise rates at the next Fed meeting
remains in place. . . . All in, the statement was moderately more dovish
that the last Fed pronouncement, and should see yields move
appropriately.
Here's Cooper's take on the thinking behind the announcement:
… the Fed asserted that “even after this action, monetary
policy remains accommodative” and that “output growth appears to have
regained some traction and labor market conditions have improved modestly”.
They realize that inflation and inflation expectations have eased in recent
months, but they are likely to continue raising rates regardless. The days
of deflation fear are over . . . Even for those of you who are more
pessimistic about the growth outlook, the Fed needs to raise rates now, so
they could, if necessary, lower them later. I don't believe it will be
necessary. My view is the economy will grow at a 3.5+% pace next year. The
Fed will aim for 3%-to-4% fed funds.”