We asked traders: When will the Fed make its move?

January 22, 2015 12:01 PM

Dan Gramza

To think about when the Federal Reserve may increase interest rates, we must take into consideration why they would raise interest rates. If you look at past Fed interest rate policy, the primary reason for the Federal to increase interest rates is their effort to control inflation. Monitoring and attempting to control inflation is one of the Federal Reserve mandates, along with maintaining full employment and price stability.

Because of the low U.S. inflation rate, my expectation is that the Fed will not increase interest rates until the third quarter, possibly at the September meeting. I would expect the amount of increase would be .25% or .5%.

If inflation stays below 2%, I believe there is a very distinct possibility the Federal Reserve will not increase interest rates at all in 2015.

We also want to remember that when the Federal Reserve changes the interest rate, it is not a tack hammer adjustment but rather a sledgehammer adjustment to the economy. Although the market reacts instantly to an interest rate change, it takes approximately 6 to 9 months for the U.S. economy to absorb the impact of an interest rate change.

Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC.  He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains.

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About the Author

Lauren is the editorial assistant for Futures Magazine. She graduated from DePaul University in 2013 with a degree in English.