Hype may be worse than reality when rate hike comes

Amy Scott Sep 16, 2015
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Hype may be worse than reality when rate hike comes

Amy Scott Sep 16, 2015
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Will they or won’t they? That’s the big question as the Federal Reserve Board begins its two-day meeting Wednesday. 

Federal Reserve Board Chair Janet Yellen and company will vote on whether to raise short-term interest rates for the first time in more than nine years. The Fed has been signaling for months now that a rate increase could come before the end of the year, but with the recent market volatility and turmoil in the world economy, analysts are less sure.

As buildups go, the rate hike is almost up there with Y2K or the fiscal cliff.

“I’ll tell you, it’s been great reality television, hasn’t it?” says Jim Paulsen, chief investment strategist at Wells Capital Management.

As with other recent cliffhangers, he says the reality probably won’t justify the hype.

“While there could be some volatility and some anxious times ahead, we’re going to get through this,” Paulsen says. “At the end of the day, markets move far more dramatically than the underlying fundamentals.”

Even if the Federal Open Market Committee does raise short-term interest rates this week or later this year, it won’t have a big impact on how much you pay for a car loan or earn on a savings account, says Jonathan Wright, an economics professor at Johns Hopkins University.

“I expect that when the liftoff happens, the FOMC will be bending over backwards to say that this is not the start of a typical policy firming cycle,” he says.

There’s still too much risk in the economy, he says, to step on the brakes too hard.

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