With the U.S. economy running hot, the labor market remaining tight and oil prices surging again, it’s no surprise markets don’t know where rates will go.
It's not that investors aren't sure about what the Fed might do at its meeting Wednesday. They're all but certain the central bank will keep interest rates the same for now, according to the. It's the November meeting investors are fretting over. Currently, markets think there's a 28.7% chance of a hike — but that percentage has reached as high as 50.89% in late August . Those wild swings reflect the uncertainty over the November meeting.
Hence, the Fed's dot plot, which charts where the central bankers think interest rates will be in the short- and long-term, will be closely scrutinized by investors. But Hatzius thinks even if members pencil in one more hike for the year, the Fed won't actually pull the trigger. It's"only to preserve flexibility for now," he wrote.
Perhaps we should give the Fed some benefit of the doubt. Ed Yardeni, president of Yardeni Research, is certainly doing so."Generally speaking, Fed watchers like to criticize the Fed and suggest that they're always wrong about their forecast and what they are doing," Yardeni said on CNBC's "Squawk Box."
"But I think they're actually getting it right this time," Yardeni said."And I think we may very well have immaculate disinflation, where inflation comes down without an economy-wide recession." This might be a brazenly optimistic prediction. But it's an undeniably cheery thought — one of the few certainties to be had today.
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