Will she or won't she?

It certainly seems as if she'd like to.  Fed Chair Janet Yellen's speech at the annual Jackson Hole conference this morning made it quite clear that she leans toward a further rate hike in the near future. Although US GDP growth has been moderate and inflation at the consumer level remains contained, consistent gains in the job market have brought the US economy close to what the Fed would consider to be full employment.

It all comes down to timing.  The Fed is generally (though not always) reluctant to make policy changes too close to Election Day, so a move in November, when the FOMC meets just six days before the polls, can probably be ruled out.  That leaves September or December, assuming that Ms Yellen was trying to signal this morning that she favours further tightening before the end of 2016.  Which is likelier?

Ms Yellen is unlikely to be moved either way by the possibility of a political backlash, if she opts for a rate hike in September.  Hillary Clinton would probably seize on any Fed move as proof that the economy is prospering under Democratic Party guidance.  Donald Trump would no doubt dispute that, but since he has already said that he would quickly fire Ms Yellen (simply because she's not a Republican), his likely disapproval would be unlikely to carry any weight at the FOMC.

What's the downside of waiting until December?  It seems unlikely that the economy will shift course dramatically in the next three months or so. Nor is there any real reason to think that keeping rates on hold through the fall will unleash a sudden burst of inflation.  However, one factor that the Fed may want to take into account is the possibility of Donald Trump actually winning the election.  That could trigger turmoil in financial markets, which would make it trickier for the Fed to act. Moreover, given Trump's stated intention to fire Ms Yellen, a December rate hike would be interpreted as a highly political move, the monetary policy equivalent of flipping Trump the bird.

These considerations would seem to favour a rate hike in September, barring a sudden (and very unlikely) deterioration in the economic data in the intervening weeks.  Absent the looming election, a September move would be a near certainty; even with polling day fast approaching, it still seems the most prudent course to take.