Interest Rates Will Rise Soon. Maybe, Probably Not, Who Knows?

September? December? 2016? Close your eyes and pick one, your chances are pretty good.

If you’ve been following along, September has undoubtedly been one of the most talked-about months of the year so far, after June got the boot of course, in terms of the economy.

And for good reason, too: it’s the time in which every economist and their mothers (and their mothers) predict that the Federal Reserve will feel comfortable enough to raise U.S. interest rates from near-zero levels.

Nothing is set in stone though, obviously, as that would be giving too much information away. In fact, the rate rise may not even happen until later, possibly next year. The latest 2016 speculation comes from Christine Lagarde, Managing Director of the International Monetary Fund, in which she laid out her suggestions for the imminent hike, among other areas.

- We believe near-term U.S. growth prospects are good.
- It is better to wait for stronger signs of inflation pressures and have an interest rate hike in the first half of 2016.
- Even after the initial step to raise rates, a gradual rise in the federal funds rate will likely be appropriate.
- And although important progress has been made to strengthen the U.S. financial system, there is more to be done to address the pockets of vulnerability.

At the time of, which was early last week, this proclamation most likely held some significance, as it’s quite a bold statement to make from a person with a great deal of global influence. Little did she know that this was going to follow:

Ah, yes, the infamous jobs report, Wall Street’s most treasured monthly indicator. Not to mention this was actually a pretty solid month, on a preliminary basis, as you can see from the headline above, the 280,000 added jobs in May exceeded both a traditional “Goldilocks” figure and consensus forecasts (225,000). As for the unemployment rate ticking up from the prior month, that was actually for good reason, due to the fact that more people joined the labor force.

Delving deeper into the report, wages, which have long been stubborn, grew 0.3% from the previous month, bringing the annual level to 2.3%, above expectations. While 2.3% isn’t entirely impressive, it is progress, and it’s of an area that the Federal Reserve has been carefully watching as a barometer of the economy’s health; their target is around 4%. Since wage increases have been growing over the past few months, tepid or not, it gives the Fed a little more reasoning in justifying a rate push. But is the U.S. ready for that yet? Maybe. Maybe not. Regardless, it will come at some point in the near future, so here’s a brief roundup of where some of the most vocal, and influential, officials stand on the matter.

Charles Evans, president of the Chicago Federal Reserve, May 4:

“Economic activity appears to be on a solid, sustainable growth path, which, on its own, would support a rate hike soon.”
“However, the weak first-quarter data do give me pause, and I would like to see confirmation that they are indeed a transitory aberration.”
“ likely will not be appropriate to begin raising the federal funds rate until sometime in early 2016.”

Dennis Lockhart, president of the Atlanta Federal Reserve, May 6:

“I’m still of the view that the conditions will be appropriate in the middle of the year, which we are getting closer to.”

John Williams, president of the San Francisco Federal Reserve, May 12:

“I see a safer course in a gradual increase, and that calls for starting a bit earlier.”

Janet Yellen, chair of the Federal Reserve, May 22:

“For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target.”

Lael Brainard, governor of the Federal Reserve, June 2:

“But while the case for liftoff may not be immediate, it is coming into clearer view. If continued labor market strengthening is confirmed and inflation readings continue to improve, liftoff could come before the end of the year.”

James Bullard, president of the St. Louis Federal Reserve, June 3:

“I think that [data] will all be transient, and it will turn out that we’ll have stronger data later in the year and that will enable us to get going on the normalization process. But I would like to see that confirmed in the near term, so that we can get on with our normalization process.”

William Dudley, president of the New York Federal Reserve, June 5:

“If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect — in the absence of some dark cloud gathering over the growth outlook — to support a decision to begin normalizing monetary policy later this year.”

Of course the most important detail(s) of all this interest rate chatter will not be about the rates actually rising, because we already know that will happen, but more so how much will they, and how fast? Is it going to be a more rip-the-band-aid off approach, or a softer, more carefully calculated procedure? Clearly we don’t have a crystal ball, so don’t expect too much just yet, but when it does happen let’s hope that the timing was appropriate enough to cushion the blow.