The Monumental Mistake Of Raising Rates In September
Bank of America, Deutsche Bank and J.P. Morgan expect the Federal Reserve to raise rates in September after a 9-3 vote held the federal funds target at 3.5%-3.75% in July. The setup puts the focus on whether policymakers are misreading weak demand as inflation pressure, with the European Central Bank also expected to raise rates in September after a 25-basis-point hike in June.
The July Federal Open Market Committee meeting exposed a sharper internal divide than the headline policy decision suggested: three members voted for a rate increase, while the 9-3 majority kept the federal funds target at 3.5%-3.75%. The article, authored by Daniel Lacalle, argues that the dissenting votes point toward a September move that would tighten financial conditions despite limited evidence of an overheating economy.
The case is not limited to the Federal Reserve. Bank of America, Deutsche Bank and J.P. Morgan all expect a September hike, while the European Central Bank is also expected to raise rates in September after increasing them by 25 basis points in June. The parallel path across the two central banks is presented as evidence of a broader policy diagnosis rather than an isolated US decision.
The article disputes the premise behind further tightening, saying there is no overheating and no private-credit excess. That claim connects the policy debate to borrowing costs, credit availability and the outlook for demand on both sides of the Atlantic.
The reporting is opinion-led and comes from ZeroHedge. The September moves remain expectations, not announced decisions. The three July dissenters establish that a hike has support inside the FOMC, but not that the committee will follow through.
The next decisive event is the September policy meeting for each central bank. Markets will need to distinguish between a hike that reflects persistent inflation pressure and one that arrives despite weakening demand. The open questions are whether the 9-3 split widens or narrows, whether the banks' forecasts are revised, and whether incoming evidence validates or undermines the claim that the diagnosis is wrong.
With no single-company ticker in play, the article leaves the rates read balanced: September hikes would pressure demand, but the July 9-3 FOMC split shows the tightening case has real policy support.
The policy risk is two-sided: further tightening could restrain demand if the article's no-overheating diagnosis is correct, while the three July dissenters and the September-hike expectations from Bank of America, Deutsche Bank and J.P. Morgan show that inflation concerns remain credible. No single-name equity or dated meeting day is supplied, so the evidence does not support a directional trade.
The read fails if September data or central-bank communication shows persistent inflation pressure strong enough to validate another hike.
CoverageSource: ZeroHedge · Published here SAT, AUG 29 · 6:40 PM ET · the only report in this recordHow this is decided →
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A September hike would reinforce the view held by Bank of America, Deutsche Bank and J.P. Morgan that policy restraint remains necessary, with three FOMC members already voting for an increase in July.
The article's opposing case is that there is no overheating or private-credit excess, making another hike a policy error that could weaken demand without addressing the underlying problem.
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