Is The Fed Preparing For A September Rate Hike?

Will the Federal Reserve implement a rate hike in its September meeting? Some investors are thinking that an uncertain domestic and global economic and political environment puts the question of a rate hike off the table. However, recent comments from the Fed's William (Bill) Dudley indicate that a rate hike may be a likely outcome next month.

Related Link: To Raise Or Not To Raise Rates: A Tale Of 2 Fed Reserve Presidents

Bloomberg reported that Dudley, the New York Fed President, cautioned investors that they are underestimating the likelihood of a hike in borrowing costs.

"We're edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further," Bloomberg quoted Dudley as saying on Tuesday on the Fox Business Network. Asked whether the FOMC could vote to raise the benchmark rate at its next meeting September 20–21, Dudley said, "I think it's possible."

Dudley also serves as vice chairman of the rate-setting Federal Open Market Committee.

Bloomberg added that based on federal funds futures contracts, investors are expecting "about one" rate hike through the end of next year. However, Dudley thinks these estimates are "too low" and that "the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so."

"We are looking for growth in the second half of the year that will be stronger than the first half," Bloomberg also quoted Dudley as saying. "I think the labor market is going to continue to tighten, and in that environment I think we are getting closer to the day where we are going to have to snug up interest rates a little bit."

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