They are, we believe, still going to raise the funds rate 25 basis points. There has been too much chatter on their end to allow negative year-end market volatility, always suspect as being more reactive than trend, to now undercut their credibility. It appears this FOMC has, however, talked itself into one heck of a corner. Beginning around 18 months ago they started to push markets to price a steeper trajectory for policy rates than was possible, given how the low demand for capital was and still is holding real interest rates close to zero. The Fed consequently ended up with the Money & Banking 101 predicted result – slowing real growth.
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