Over the past several months, economists had forecast that the Federal Reserve would hike the overnight benchmark interest rates from near zero in the middle of next year. Most mainstream media outlets – the Wall Street Journal, CNBC, Reuters, etc. – were so sure that the United States central bank would raise rates.
Now, most economists, financial experts and media outlets are unsure about such an incident transpiring and are now writing that Fed Chair Janet Yellen may very well delay another rate hike come the middle of next year. But weren’t these financial minds and business reporters absolutely positive the Fed would boost rates after it had ended quantitative easing, as early as a week ago?
Ostensibly not. CNBC reported Friday that the markets have already prepared themselves for an environment of the status quo, meaning near zero rates, a policy that has been the iniquitous mainstay for a long time. Here is what the business news outlet wrote:
“Declining oil prices have led to a belief that inflation remains tepid, while global growth is relatively anemic. Even though the labor market continues to show signs of improvement, the Fed likely will use the low inflation expectations as fuel to stay dovish when it comes to its target funds rate, which has been stuck near zero for more than six years.
“In its 2015 outlook, LPL Financial expressed optimism for U.S. economic growth, believing that gross domestic product could increase at a better than 3 percent annualized pace for the first time since the end of the Great Recession.
“Yet economic indicators that the Fed utilizes, particularly those that look at unemployment, show enough slack to justify, along with low inflation, continued ultra-easy monetary policy.”
Here’s a question: haven’t we experienced this narrative several times before? It seems as if every single month, quarter and year some financial mind predicts the Fed would raise rates at its next Federal Open Market Committee (FOMC) but then its turn out that the entity refrains from boosting rates. It happened on numerous occasions under Ben Bernanke – even when Bernanke vowed he would not “normalize rates” – and it will happen again under Yellen.
Heck, the former Fed Chair vowed to raise rates once the unemployment rate dipped to or below six percent. Well, the (official government) jobless rate has reached that number and still no rate hike.
Prior to Bernanke’s announcement in 2011 that the Fed would hold short-term interest rates at zero for a minimum of two years, there were predictions, forecasts and prognostications of hikes. Since 2013, the same thing has happened with economists forecasting a rate hike. With six months left until the middle of 2015, establishment economists will be proven wrong yet again.
The Fed can’t raise rates at a time when the government maintains a record $18 trillion national debt, consumers are trillions of dollars in the hole, the stock market doesn’t receive its monthly stimulus injections and the labor market remains depressed.
When will the Fed raise rates? Who knows when – this is why the market should be in charge of interest rates. Oh, wait! LPL Financial is now calling for early 2016. This should be interesting…
“Although most metrics have partially recovered from their Great Recession lows, only a few have returned to ‘normal.’ Until they do —or at least until they make significant progress toward normal—markets should expect that the Fed will be content with keeping its fed funds rate target near zero,” LPL said in its annual look-ahead report for clients. “In our view, the Fed is not likely to begin raising rates until late 2015, or possibly early 2016.”
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