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Blinder: The Fed will likely defer a rate hike until December

The Federal Reserve faces a close call on whether to lift interest rates this week. U.S. employment keeps improving, but price inflation is quite low and global financial markets remain unsettled.

“My guess is they will not [raise rates], and they will defer the liftoff until the December meeting,” says Alan Blinder, Princeton University Professor of Economics and a former Federal Reserve Vice Chairman.

Either way, whether the a rate hike happens now or in December, it will not make a difference to the broader economy, Blinder adds.

”For a small number of people in the financial markets...the stakes are pretty high because these are the people that bet money on the Fed's decisions. For the rest of us, the stakes are really low. Macro-economically, in terms of the growth of the economy, the behavior of inflation, wages, all the things that matter to ordinary people, it won’t matter whether they start in September or December.”

Several prominent economists and traders, including bond guru Bill Gross, say the Fed already missed its opportunity to raise interest rates this year. However, Blinder disagrees, noting that the Fed wants to make sure market conditions are optimal.

"If the Fed felt very strongly that they absolutely had to start [raising rates] in September, they will," he says. "But I don't see any reason why they should feel strongly between September and December."

While some have questioned the Fed’s ability to achieve its interest rate target once it starts raising rates, Blinder has full confidence the Fed will achieve its goals.

“The interest rate today is a range of 0-25 basis points,” he says. “On the minute after liftoff, whether that comes this week or in December, it's going to be another range, like 25-50 basis points. They only have to get inside that range, and I don't have much doubt that they'll achieve that.”

He stresses that raising rates will be a slow process. “When they start, they're going to move very gradually,” he says.