Positive outlook on employment increases possibility for Fed to raise rates this September

The Federal Reserve will go into a policy meeting on September 16 to 17 to discuss whether to increase interest rates or not. But the drop of unemployment rates may increase the possibility for a rate hike this month.                                                         

According to MarketWatch, the Fed would normalize interest rates if there is progress towards full employment, and if inflation would accelerate to 2%, which is their main goal. The drop of unemployment rate strengthens the Feds decision to increase interest rates.

Unemployment rates dropped to a seven-year low. The Labor Department reported Friday that employer added 173,000 jobs in August, while unemployment rate decreased to 5.1 percent, according to The New York Times. Average income also increased by 0.3 percentage point in August.

There are indicators, however, that the decision for a rate hike will not happen on September. The decision may even be moved to October or December. The report on employment was highly anticipated since it will provide evidence on whether central bank will increase rates on September or not.

Meanwhile, Richmond Federal Reserve Jehhrey Lacker said Friday he would go in the policy meeting this September with an "open mind" on whether to increase interest rates or not. "I'm always open to listening to my colleagues in the meeting, said Lacker. According to Reuters, Lacker is an advocate to increasing interest rates soon. "Otherwise we can just do these things by notation vote. And so I'm going in with an open mind," he said.

Most Federal Reserve Officials think that this year is the right time to increase interest rates. The exact timing of the decision has become a big issue on Wall Street. For investors all over the world, the anxiety that is building up on the possibility of interest rate hike will increase the possibilities of stock market swings. If the Feds will increase interest rates, it will start small. But it will still have a big psychological effect, because it's the first short-term rates increase since June 2006.