Magazine article American Banker

Fed Rate Hikes Predicted for Next Week and October

Magazine article American Banker

Fed Rate Hikes Predicted for Next Week and October

Article excerpt

No, traders, inflation is not under control, say some economists.

Unlike many investors who were buoyed by Tuesday's consumer price figures, a number of economists say they expect the Federal Reserve to raise interest rates not only this month but also in October.

The economists' predictions were based on data released Tuesday -- the government's report of a 0.3% rise in the July consumer price index, a stronger-than-expected 0.7% rise in industrial production, and a 5.7% increase in housing starts. All these data indicate that the economy is not slowing and that it might be picking up steam.

"Next week's rate hike is a done deal," said Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y. The Fed will act to "ensure a slowdown of the economy toward a 3% growth rate."

"You have to scratch hard to find signs of even incipient slowing in the economy," said C. Frazier Evans, senior economist at Colonial Management Associates in Boston.

He said he expects the Fed to raise its target for the federal funds rate by a quarter of a percentage point , to 5.25%, at the central bank's monetary policy session next Tuesday and then again by a similar amount at the Oct. 5 session.

The funds rate is charged for overnight loans of excess reserves among commercial banks and, as the shortest-term rate, anchors the yield curve on various maturities of Treasury securities. Treasuries, in turn, are the basis for prices and yields other bonds. …

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