Janet isn't the gambling type
The most important thing to the Fed isn't the economy or inflation; it's power.
Now those things are all tied together but at the moment the Fed is under unprecedented scrutiny for policy missteps.
So why on earth would it risk hiking rates in September ahead of an election in an economy that grew at a 0.95% pace in the first half of the year?
The Fed funds market is pricing in a 38% chance of a hike on Sept 21. That's way too high.
There is no urgency to hike and unless there is a string of blockbuster data releases between now and then; I see the chance of a hike closer 5%.
Sure, employment is good, consumers have had a few good months and housing is heating up but there is no data to show inflation or growth. Those may come but the Fed can certainty afford to wait until they do.
What Yellen can't afford is to unnecessarily hike rates in September in what would invariably be considered a surprise and roil markets just six weeks ahead of a Presidential election. That would be career suicide and totally unlike Yellen, who has been either cautious or wrong throughout her tenure.
For sure we will watch the August data roll in but I can't see a realistic scenario where Yellen hikes. Even a strong hawkish signal would be too much of a risk to take for a Fed that cares more about the level of the S&P 500 than anything.
