Market Lab Report – Premarket Pulse 9/14/15
Major averages rose Friday on lower volume. The Federal Reserve decides this coming Thursday whether or not to raise interest rates. Economic data show potentially enough evidence to warrant a rate hike, but the global economy remains in a quagmire. Chairperson Yellen of the Fed is a notorious dove thus she is likely to err on the side of caution and keep rates unchanged for at least another meeting or two. Of course, the should the global economy continue to drag, she may not hike rates until there is sufficient evidence that the major economies are on the mend. This could delay a rate hike until sometime in 2016. Of course, each time the Fed postpones a rate hike, the market expectations of a rate hike increase which can be a drag on the US markets. Furthermore, China could easily retest recent lows which would also put downward pressure on the US markets. Nevertheless, the Fed may hike rates one time to keep up appearances as they are a political body, then relax rates once again. They did this in 1936 when the US was deleveraging a long term debt cycle. They hiked the discount rate by 0.5% in 1936 then eased until 1940. They could repeat this action again, hiking once, then easing by way of renewed QE, or QE4. CME futures put the odds of a rate hike at 23% when the Fed meets this Thursday and 37% when they meet in October.