In case you haven’t heard, the U.S. Federal Reserve is meeting this week to decide whether to raise interest rates off of the zero bound for the first time since the financial crisis several years ago. Whether the Fed is or isn’t going to raise interest rates by one quarter of one percentage point on Wednesday has become one of the most overly tortured topics for discussion in recent memory. But while the market impact should be relatively muted – if investors aren’t prepared for the fact that the Fed may raise interest rates by now, they never will be – the stakes for the Fed itself are actually fairly high. The Fed desperately wants to raise interest rates, not because the economy is so strong but so that they can have a policy buffer in preparation for the next recession. But after too many years of waiting and coddling the markets, they are now very late in seeking to make such a move. And a misstep on Thursday could effectively close the window on their ability to raise rates going forward.
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