Will the Federal Reserve Raise Interest Rates this Week?

A big question for many traders this week is will the Federal Reserve raise interest rates? A federal interest rate decision is an upcoming event this week that can affect the market, so in this post I will give my thoughts on the topic.

Firstly I am quite neutral on whether they will or not, meaning that I think the result could go either way. Because of that reason I suggest traders prepare accordingly for either scenario.

Let me share my opinion for why they may or may not raise below.

forecast interest rate rise US

Above – Above screenshot showing economic calendar for this week and upcoming Federal Reserve Interest Rate forecast. Many are forecasting a rise from 0.50 to 0.75 percent.

Be aware that above screenshot image is showing Australian time for this event.

Why raise?

Credibility of the Federal Reserve is a big reason that leads me to think they may raise this week more so than any other factor, the Federal Reserve has been hinting at a interest rate rise now for many years and if they do not raise this time it could lead to investors taking them less seriously.

Another factor to consider is that raising interest rates is part of debt market cycles, a period of low rates to encourage spending via debt to stimulate growth, ( whether debt growth or real growth ) then raising rates to discourage lending and encourage paying back debts. Raising rates essentially is the Federal Reserves way of saying to Americans to start paying back debts, whether government debt or private ( housing, mortgages, etc ).

Why not raise?interest on national debt

One of the main reasons for not raising interest rates is because of the national government debt level in the U.S. This is at record levels and has nearly doubled in the last 8 years. The current national debt in the U.S. is just under 20 trillion dollars, to see the current debt clock.

Raising interest rates would mean higher interest costs on servicing that debt and thus cause issues for the U.S. government repaying.

Image to right: Calculator showing interest costs of 20 trillion dollars of debt each year at 0.75 percent. This does not include repayments, transaction fees, admin fees and other related costs.

Is a interest rate rise factored in?

I think it has been factored in all year and now more so than any other time, so if they do not raise it could affect the U.S. dollar quite negatively. This also suggests that if they do raise as forecasted that the market may not respond much at all, as it is already factored in to the price.

Aspects to consider

A higher rate suggests higher interest costs for the government on the national debt, so unless economic conditions improve immensely in the short term, the Federal Reserve in my opinion would have to provide some type of accommodating approach.

Risk

The biggest risk in my opinion is for those holding buy trades on U.S. based markets if they do not raise. This could cause a surprise drop in U.S. dollar value.

I would suggest either not trading before event or limiting exposure to U.S. based markets before this event in case of a possible surprise hold on raising interest rates.

Let me know what you think, will they raise interest rates or will they hold once again this week?

About Timon Weller

Timon Weller is the professional Writer and Trader behind the blog Forex Reviews. Timon Weller is also a professional Teacher of Price Action Trading and creator of the popular Training Series teaching people how to trade Price Action effectively called The Engulfing Trader. For other Forex Training available here at Forex Reviews click here.

For more on Timon Weller Click Here. To Learn more about How to Trade the Market and get updates Click Here.

Comments

  1. Clayton van der Schyff says:

    Timon I would like to thank you!!! Not only have you made it possible for me to understand the way the market moves but you have turned me into a successful trader. I must say I was struggling, one moment I think i have a system that works the next it just fails one after the other!!!! This was worrying cause i was in a financial bind and believed that trading could get me out, against contrary belief, I knew I just had to find the right system. Then I found your 15 minute trading video on YouTube and then was still struggling, I actually thought it was nonsense even though I could see the proof. Anyway, what was bothering me is that I could see it working during your lesson so I decided to start your 11 part series, long story I have a success rate of about 90% thanks to you. Thank you for taking the time to share your knowledge (as so many others would never) and being bloody good at it!!! Thanks Timon, sincerely THANK YOU!!!

  2. Hi Timon,
    Yes i believe they will absolutely raise rates Wednesday, the market expectation in around 90% so the market is giving them a green light.. Also the bond market is giving them a green light as well… It’s my expectation though that the markets have priced it in far too many rate hikes for 2017 with 4 expected.. So this leads me to believe that the dollar will stay high until markets turn down a bit and expectations of future rate hikes drop from 4, this could send dollar down to 90.

  3. Hi Timon,
    What happened this week with the review, I have not received, is everything okay…. thanks in advance.

    • Hey Karim, hope you are well.
      All is good on this end, I had an early break this year for the Christmas holiday period.
      I most likely will do a video update before Christmas.
      Regards,

  4. Damian Cresp says:

    Hi Timon, I concur fully with what Clayton has just said. Simply, it works. With respect to US interest rates, you should expect them to raise. I am an avid follower of Bob Prechter at Elliott Wave International and he has identified over decades that the central banks actually follow the market, they do not lead it. The US 3 month and 6 month T-Bills are currently above the FED rate, so expect them to raise. Your analysis on the outcome is very good, there is more downside risk if they do not raise, but I think they will, cheers Damian

  5. Frank Nilson says:

    Thanks Timon, your analysis is great and it is appreciated.

  6. Nice analysis,
    thank you Timon

  7. Hi Timon, I have no idea if the Fed will raise rates or not. What is interesting is that you say the Market has already factored in a small rise so that market will be flat unless there is a surprise! I think you are right to be out of the market before the announcement!
    Enjoy your break & I look forward to your next review. Very Best Regards. Jerry Clark

  8. The Fed promised 4 rates rises in 2016 and only delivered one of 25bp so their credibility is falling flat in the markets. Similarly, each time the ECB introduced increased QE stimulas packages in 2016 the euro went up when it should have gone down, yet last week Draghi announced tapering and then tried to dress it up by saying its not tapering, hence the euro lurched lower on his inability to know what tapering actually means. If he actually recognised what tapering means and did not try to talk over it the euro should have gone up last week, but as usual his continual attempt to talk the euro down outweighed a shift in set policy. Overall the credibility of all these central banks is being questioned by the markets and we have seen the markets move in the opposite way to policy in 2016. Therefore, I am hoping we see int rate rises from the US and an immediate move north for that dollar as news traders pile in, only to then unravell itself on the same down and reverse and continue down from there in a trend reversal for 2017. Lets not forget Trump also wants a cheap dollar for exports and that was a major part of his campaign ie to attack Japan and China which he has already started on twitter last week. I appreciate he is not in office yet but maybe he still has some influence for this announcement. The US has a 20trillion dollar debt so higher rates means its harder to service that mountain of debt which might be another factor for why they have been so reluctant to fulfill their commitment to 4 rate rises in 2016. Tomorrow will tell us a lot more but volatility could be immense as the battle commences!

  9. I agree, with your assessment, throughout 2016, I did not believe they would raise Interest 4 times, for the very reason you mention, the cost to the government debt is far too high and above all, the FED must maintain credibility, to not do it now will destroy what little credibility they have.
    It would seem unlikely any rate hikes in 2017, for a multiplicity of reasons, the government carry cost of Debt repayment, the increasingly out of control Military budget and the Hawks desire to intervene in governments around the world.

    Despite the official jobless figures, the true jobless is circa 93 million. A rise in interest rates renders USA products more expensive and potentially imports cheaper.

    All this at a time when the new president wants to increase spending on USA infrastructure, improve exports and reduce military spending. A tall order, a significantly stronger $ does not help, further interest increases will not help.

    The USA has a difficult balancing act, it could be that the increased interest rate, and amnesty for repatriation of non paid corporate taxes and lower tax burdens may be just enough to restart the economy. But for all that to succeed they will have to make cut backs (overseas military expenditure?) who knows.

    I am expecting 2017 to be a bumpy ride for the $.

  10. Thanks Timon, very informative view, which I always find from your reviews and your knowledge/experience.

    It’s very much appreciated,

    Kindest Regards

    Mike

  11. vincent foo says:

    thanks Timon.. i will trade after the news and watch the flow on usd. thank you again ..your info is helpful to me in trading, appreciate…cheers and merry christmas to you n family..great year ahead for u and fellow traders….merry christmas and a happy new year…great 2017 to all.

  12. Good info to consider
    Thanks Timon

  13. Forex Update – The Federal Reserve raises interest rates to 0.75 percent from the previous 0.50 percent rate. Be aware that the Federal Reserve unlike other countries uses a interest rate range, so in other words the current range is now 0.50 to 0.75 percent and previously was 0.25 to 0.50. Because they use a range it can mean that the are using the lower end of that range.

    Above Video – Press Conference with Chair of the FOMC, Janet L. Yellen

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