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Why the Fed should stun Wall Street with a rate hike

Joseph

The Fed should shock the markets with an unexpected interest-rate hike just to set a precedent.

When it comes to the tricky task of raising interest rates, the Federal Reserve likes to prep investors before pulling the ripcord. It sees this as a way to prevent markets from reacting violently to unexpected news.

But this approach failed in December, when a well-telegraphed rate hike was followed by weeks of extreme volatility.

On Friday, a team of currency and interest-rate strategists at Bank of America Merill Lynch suggested that it might be time for a new approach.

After studying Fed-funds futures data, the strategists discerned that the Fed has typically provided investors with plenty of warning before raising rates.

As the following chart shows, the Fed hasn’t raised...


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