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Will the Fed Raise Interest Rates?


Before Katrina hit, every analyst predicted the Fed would continue with its 0.25% rate increase in its September 20th meeting. But after Katrina, many changed their minds. This September 1st Forbes article reported on the sentiment that Greenspan and company would wait until the November meeting to begin raising rates again. As one analyst put it, "They would look cold-hearted raising rates in September."

The sentiment now seems to have gone back to a rate increase for next Tuesday's meeting. This MSNBC article reports that most economists and analysts now expect the increase. Some still think there's a slim chance that the Fed will pause until November, either out of respect for the Hurricane victims or due to uncertainties regarding its effect on the economy. But with soaring fuel costs, the fear of inflation is expected to prevail in the Fed's decision.

If there is an increase, it'll be interesting to see how the banks respond. My prediction for the end of the month is ING Direct will raise its savings rate to 3.5% and EmigrantDirect will raise its rate to 3.75%.