Financial Markets Prepare as the Fed Decides on Interest Rates


The U.S. Federal Reserve will be sitting down to decide what to do with the key interest rates at its September 16-17 meeting, leaving bankers and investors anxious to see if it will increase the cost of borrowing from near zero for the first time in nearly a decade.

Employment Gains

The uncertainty about the long expected move comes from the fact that despite the continuing fall in unemployment, which has brought the U.S. jobless rate down to 5.1 percent, the numbers was still under the consensus forecast of 217,000. In total, the American economy only saw the addition of 173,000 jobs and while this represents a 0.2 percentage decline in the unemployment rate, bringing it to the lowest level ever since April 2008, it is still lower than expected.

At a recent weekend meeting attended by the world’s central bankers and finance ministers of the G20, many pointed out that the Fed should be especially careful to ensure that there is no uncertainty in either employment or price stability before pulling the trigger on a rate increase.

Lack of Consensus

There is a surprising lack of consensus among economists on the issue. Several have taken the position that the domestic economy is healthy enough to justify tightening of the monetary policy from its current relatively unrestrained conditions, and that the only barrier could actually be found in the instability of the international financial market.

However, some are not so confident, as they suspect officials will hold off for now as a result of the risks arising from the overall weakness in global growth and general turmoil in the financial markets.

Whatever the final September decision is, it cannot be denied that the U.S. economy is gaining momentum, with the GDP expanding at 3.7 percent annually, and strong growth in key areas such as construction and consumer spending.


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