The Real Reasons Why The Fed Will Hike Interest Rates

For the past several months, the chorus of voices crying out over the prospect of a Federal Reserve interest rate hike have all been saying essentially the same thing – either they can’t do it, or they simply won’t do it. This is the same attitude the chorus projected during the initial prospects of a QE taper. Given the trends and evidence at hand I personally will have to take the same position on the rate hike as I did with the taper – they can do it, and they probably will do it before the year is over.

I suppose we may know more after the conclusion of the Fed meeting set for the 16^th and 17^th of this month. August retail sales data and industrial production numbers have come in, and they are not impressive even with the artificial goosing such stats generally receive. However, I do not expect that they will have any bearing whatsoever on the interest rate theater. The Fed’s decision has already been made, probably months in advance.

The overall market consensus seems to be one of outright bewilderment, so much so that markets have reentered the madness of "bad news is good news" as stocks explode on any negative data that might suggest the Fed will delay. The so-called experts cannot grasp why the Fed would even entertain the notion of a rate hike at this stage in the game. Hilariously, it is Paul Krugman who is saying what I have been saying for the past year when he states:

"I really find it quite mysterious that the Fed is eager to raise rates given that, they’re going to be wrong one way or the other, we just don’t know which way. But the costs of being wrong in one direction are so much higher than the costs of being the other."

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