To hike or not September is a close call. Debate has been loud and public. Fed officials are divided: two or three clearly want to move; one or two do not. The remainder, including Yellen, have been quiet. Outside the Fed, serious advice from serious people has been proffered; it is just as divided. Two Nobel prize winners and a former Treasury secretary want the Fed to wait. So too, the IMF and World Bank, mainly on worries of capital outflow from emerging markets. Offsetting this, several EM central bank heads, including India's, who used to serve as the chief economist of the IMF, wish / urge the Fed to move now to 'remove uncertainty'. Why wait until December? What would it achieve?



Indeed. The odds of a September seem to have soared in the past few days because of those two questions. After three weeks of arguing, the debate seems to have shifted to 'Why wait until December?' from 'is it the right thing to do?' in the first place. And if the choice inside the Fed also becomes the binary 'Sept or Dec?' - as opposed to: 'is it time?' - we'd guess few will find reason to wait. Given the binary option, waiting is pointless.



"We continue to expect, as markets do that the Fed will move in December and continue to hike slowly / cautiously over the course of 2016, not because the data will justify such hikes (of which we expect 5 by end-2016) but simply because the Fed is afraid of falling behind the inflation curve and being taken to task for it," noted DBS Bank.



The risk is clear. Core PCE inflation - the Fed's favoured gauge - has been falling for the past 3.5 years. It fell to 1.2% YoY in July. If inflation continues to trickle lower, the Fed's 2015/2016 hikes would be seen as premature, obliging it to stop hiking and, perhaps, reverse course. Market volatility would ensure/return.



"The question shouldn't be: Sep or Dec, pick one. The question should be, is it time?" commented DBS Bank research.