Where the Fed stands on a September rate hike

Is September going to be the month the Federal Reserve raises rates for the first time this year?

Don’t hold your breath. Given the mixed economic data and the lack of a clear signal from Fed speeches, many economists have low expectations the Fed will announce any policy changes after its meeting on Wednesday.

“Fed officials made no concerted effort to raise market expectations over the last two weeks, and the FOMC almost never surprises with a hike. As a result, we now see very low chances (<5%) of a rate increase next week,” said Zach Pandl and Jan Hatzius of Goldman Sachs Global Investment Research.

Meanwhile, market expectations for a September rate hike have dropped to 12%, after spiking as high as 42% following Fed chair Janet Yellen’s Jackson Hole speech last month.

A slew of mixed data in August, including weak retail sales, soft ISM manufacturing and services readings, and slower-than-expected hiring, lowered the outlook for a rate hike. However, consumer price inflation came in above expectations on Friday, making the Fed’s decision not so straightforward.

With the economy already at full employment and signs of increasing wages, inflation risks are rising, notes Torsten Slok, chief international economist at Deutsche Bank. “In that case, the Fed will no longer have the luxury of being slow, gradual, and cautious, and this continues to be a significant risk to the ongoing hunt for yield in the markets,” he said.

Also complicating matters: The Bank of Japan, which meets on Tuesday, and the Bank of England are considering dropping their interest rates further.

Here are the latest comments from Fed officials on the economy and the possibility of a rate hike (FOMC voting members are highlighted in green):

Lael Brainard, Fed Governor, on September 12th: “[T]he case to tighten policy preemptively is less compelling,” given that low unemployment has failed to increase inflation.

Neel Kashkari, Minneapolis Fed, on September 12th: “There doesn’t appear to be a huge urgency to do anything.”

Dennis Lockhart, Atlanta Fed, on September 12th: “If 1.6 percent inflation and 4.9 percent unemployment were all you knew about the economy, would you consider a policy setting one tick above the zero lower bound still appropriate? …I think circumstances call for a lively discussion next week.” However, he later added that there was no urgency to act at any particular meeting.

Eric Rosengren, Boston Fed, on September 9th: “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy…a failure to continue on the path of gradual removal of accommodation could shorten the duration of this recovery.”

Robert Kaplan, Dallas Fed, on September 9th: The Fed can afford to be “patient and deliberate in its actions.”

Daniel Tarullo, Fed Governor, on September 9th: “I wouldn’t foreclose that possibility [of raising rates this year]… What is optimal right now is to look to see actual evidence that the inflation rate would continue to go up and would be sustained at around the target.”

Jeffrey Lacker, Richmond Fed, on September 7th: “It looks like the case for a rate increase is going to be strong in September.”

John Williams, San Francisco Fed, on September 6th: “[It] makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.”

Loretta Mester, Cleveland Fed, onSeptember 1: “If you have a forecast and inflation is moving up to your target and you’re at full employment, then it seems like a gradual increase from a very low interest rate is pretty compelling to me. Pre-emptiveness is important.”

Charles Evans, Chicago Fed, on August 31st: “If necessary, we could normalize policy much faster than currently envisioned and still keep the pace gradual enough to avoid a disorderly change in financial conditions.”

Stanley Fischer, Fed vice chair,on August 26: Fischer noted that Yellen’s comments (earlier in the day) were consistent with a move in September and possibly two hikes this year.

Janet Yellen, Fed chair,on August 26: “I believe the case for an increase in the federal funds rate has strengthened in recent months.”

Jerome Powell, Fed Governor, on August 26: “We can afford to be patient…when we see progress toward 2% inflation and a tightening labor market, and growth strong enough to support all that, we should take the opportunity [to raise rates].”

James Bullard, St. Louis Fed, on August 26th: “I’m agnostic on exactly when we [raise rates].”

Esther George, Kansas City Fed, on August 25th: “When I look at where we are with the job market, when I look at inflation and our forecast for that, I think it’s time to move.”

William Dudley, New York Fed, on August 16th: “We’re edging closer towards the point in time where it’ll be appropriate to raise interest rates further.”

Patrick Harker, of the Philadelphia Fed, has been quiet about his stance on a rate hike, but he did vote to increase the Fed’s discount rate in July.