Analysing the odds of a Fed rate increase

AS the debate about whether the US Federal Reserve will begin raising interest rates next week reaches fever pitch, each side is being forced to adopt so-called corner solutions, arguing for their respective position with mounting conviction. This is understandable given the demand for a definitive answer. But it also is unfortunate, because both camps fail to take account of some broader considerations that cloud any certainty.

At the simplest level of analysis, there is a 60/40 case in favour of a decision to begin the interest rate normalisation process at the Fed's Sept 16-17 Open Market Committee meeting.

The 60 per cent case reflects improving domestic economic conditions in the US, the Fed's main focus and primary concern. Job creation is robust, wage pressures are gradually building, and the economy's growth engines have bounced back from a disappointing start to the year.