A small jump in interest rates seems to have been very well telegraphed by Fed officials over the last few weeks. So I expect that the Federal Reserve is going to announce it will raise interest rates by 0.25%. That also seems to be the consensus expectation. So what are the odds that the Fed will surprise the markets by doing something different? It is always a possibility, but the odds are low.
The Fed has often said that it doesn’t like to surprise the markets. Further, all their statements recently indicate that a rate hike is in the cards. So doing nothing or raising rates more than 0.25% is a low probability. The important point of all of this is that the Fed is a distraction. The steps it is taking and its announcements are designed to give an impression that the Fed is in control and knows what it is doing.
But inflation is rising, and not only in the US. It is global. Europe recently has been reporting some of the highest inflation numbers in years. When it comes to central banks, whether the Fed, European Central Bank or any other, the important point is real interest rates. In other words, real interest rates are how much interest income can you earn after accounting for the loss in purchasing power from inflation?
- Source, James Turk via King World News