Wall Street is getting cold feet about that September rate hike

Investors were freaked out this much by New York Fed president William Dudley’s comments.
Investors were freaked out this much by New York Fed president William Dudley’s comments.
Image: AP Photo/Richard Drew
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As the stock market twists and turns, all eyes are on the Federal Reserve.

The US central bank’s September meeting is getting closer and closer. And though the minutes from its July meeting weren’t clear one way or the other on whether a hike would be coming, economists have, for months now (paywall), been expecting the September gathering to mark the start of the first US interest rate-hiking cycle since 2004.

After this week’s market madness, William Dudley, president of the Federal Reserve Bank of New York and a member of the Fed’s monetary policy committee, said that a September hike was looking less likely.

The 30-day federal funds futures contract shows that investors feel similarly. The closer it gets to 100, the less confidence there is that rates are going up in the near future (and there’s clearly less confidence now).

Just a couple of weeks ago, the contract dropped below 99.75 for the first time in six years, before traders abruptly changed their minds.

Citibank told clients today (Aug. 26) that it was standing firm in its call for a September hike. But Royal Bank of Scotland came out two days earlier and said it was on the verge of pushing its rate-hike call all the way to March:

While policymakers can theoretically act at any meeting, in reality a rate hike in December will be challenging to implement – a fact that we think will become increasingly apparent to policymakers as year-end approaches.  As for October, the lack of a press conference in October makes it equally unattractive (for that reason).

A lot could happen between now and Sept. 16, when the next Fed meeting takes place, but the consensus that higher rates are coming out of it seems to be crumbling quickly.