It's Finally Fed Week: To Hike Or Not To Hike?

This week traders will finally find out whether or not the U.S. Federal Reserve believes that the U.S. economy is strong enough to withstand an interest rate increase as the bank is set to hold its two day policy meeting on Wednesday and Thursday.

Markets are tentative ahead of the decision as most believe there is a 50/50 chance that the rate hike will be postponed. Conflicting data, worries about the global economy, and uncertainty in financial markets are all expected to play into this week's decision.

Data Says It's A Go

Recent economic data from the US has been supportive of a rate hike as most reports indicate that the nation's economy is headed in a healthy direction. Unemployment data showed that the jobless rate in the US has fallen to 5.1 percent and second quarter growth was revised higher to 3.7 percent. Many believe that is enough to warrant a rate increase despite the fact that concerns about inflation remain.

Related Link: Here's What Could Happen To The Economy If The Fed Raises Rates

History Says It's A No

Most of the world's major central banks have similarly cut interest rates to historic lows in order to reduce the effects of the global financial crisis. However, central banks in the eurozone, Sweden, Israel, Canada and Australia have all attempted to raise rates, only to find that the increase negatively impacted their economies. Every central bank that has increased interest rates over the past few years has been forced to retreat and reduce them again to prevent another economic slowdown.

Where Does The Fed Stand

The Fed has made it clear that an interest rate hike is coming, and the bank is unlikely to back down from that commitment. However, many believe that the market turmoil that stemmed from China in recent weeks will be enough reason for the U.S.' central bankers to put the increase off. Most economists expect the bank to keep rates low this month and wait until October or December to carry out the increase.