The Fed and Wall Street Differ on How High Rates Will Go
ByTo believe the market’s views on rates, “you have to be pretty bearish.”
Photographer: Andrew Harrer/Bloomberg
The Federal Reserve is indicating that it will raise interest rates four more times before the end of 2016, but traders in the financial markets don’t believe it. They’re expecting just two more hikes in the coming year. The Fed’s lack of believability on rates could complicate its job of steering the U.S. economy next year and beyond.
The Fed damaged its credibility over the past half-decade by repeatedly stating that it expected to raise interest rates, only to back down when stronger growth failed to materialize. Traders made easy profits by betting against the central bank, defying an old maxim on Wall Street—“Don’t fight the Fed.” Now Fed Chair Janet Yellen and the rest of the monetary policymakers have to persuade the financial markets that this time, they really, really mean it…
