Fed Determined To Raise Rates

It looks like the Fed is pretty determined to raise interest rates at its next meeting in June. Of course, Wall Street had predicted only a 10% chance of this happening as of the beginning of this week, so perhaps the Fed will give them a little more time until July in order to position themselves properly for this move. Apparently, the memory of the disastrous rate hike in December has not scared the Fed off and they are determined to start raising rates again. I’m not so sure the desire to hike rates is so much driven by the fear of inflation (core PCE is still below the Fed target) as it is by the desire to have a few bullets in their gun in the event of the next recession. They are looking for some room to cut rates in the event of an economic downturn rather than resorting to another round of quantitative easing and expanding what some of their members think is an already too bloated balance sheet. Coincidentally, of course, average hourly earnings have began a small but relatively steady climb upwards over the last few months – that has always been a sign to the Fed that it’s time to take away the punch bowl.  The Fed better hope that a small rate increase will not end that trend – it has done so too often in the past.