The guy that has lunch every week with New York Federal Reserve president William Dudley says that investors are in for a rude awakening in just a few weeks.
Goldman Sachs chief economist Jan Hatzius told CNBC Friday that the most likely outcome at the two-day FOMC monetary policy meeting that concludes on September 21 is that the Federal Reserve will raise rates.
He said that Friday’s jobs report—showing the American economy created a less-than-expected 151,000 new jobs—was far more positive for the economy than many have perceived. “It was a little below expectations, but for us, it’s just enough to make it a little more likely than not that they do go in September,” Hatzius said.
Goldman now says there is a 55% chance that the Fed will raise rates in September, up from a 40% chance it had been predicting before Friday’s jobs numbers. And that prediction was raised from earlier this summer, when Hatzius was placing a 35% chance of a rate hike in September.
Based on trading in the Fed futures market, the general expectation of traders is that a rate hike at the September FOMC meeting is only 18%.
Whether the next change by the Fed comes at the September meeting or later, possibly December, expect another increase in rates. The view held by Austrian-lites that the Fed can't raise rates is based on a fundamental misunderstanding of Austrian School Business Cycle Theory.