The Federal Reserve will raise US interest rates this week. Market participants are near certain it will, with futures prices implying a 96 per cent probability of a rise. The important question is not whether it will happen but whether it should.

Fed policymakers seem reasonably convinced that the US is near or at full employment and it is therefore time to gradually tighten before the economy overheats and runaway wage and price inflation set in. There are four reasons to believe this view is wrong.

First, even if investors expect the Fed to raise rates now, the implication of longer-term market pricing is that monetary policy will remain a lot more accommodating in the next few years than the Fed’s policymakers themselves forecast, as the “dot plot” chart below illustrates. Markets, in other words, are less confident than the Fed is that the US economy is at a point where tightening is appropriate — and think the Fed will realise this when push comes to shove. In the past, when market expectations have defied the interest rate path charted by the Fed, it is policymakers who have adjusted to the market view rather than the other way round. Alternatively, if the Fed pushed ahead according to plan, markets and the economy might respond more negatively than policymakers now think.