Economists are now certain. They know 100 percent the Federal Reserve will raise interest rates twice this year by 50 basis points. Despite their incorrect prognostications in the past of how the United States central bank will boost rates this month, they are now guaranteeing rate hikes.
With four Federal Open Market Committee (FOMC) meetings remaining this year, including one in September, many are pointing to these meetings as to when Fed Chair Janet Yellen will increase interest rates for the first time since 2006. However, one media outlet alluded to three hints that the Fed won’t actually decide to raise rates in 2015.
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The Sydney Morning Herald published an interesting article Monday highlighting three key suggestions that Yellen and Co. will take the advice of the International Monetary Fund (IMF) and the World Bank and refrain from moving rates upwards.
Here are these three reasons:
– Consumer spending outlook is unclear: consumer spending may be growing at a moderate pace, but consumers are putting a little bit more cash away for a rainy day.
– Labor market still needs a remedy: the unemployment rate has dipped to under six percent, which is having the White House celebrating. However, there are other important factors of the labor market to consider. One of them is the immense number of part-time workers. The other is the 37-year low labor force participation rate. Let’s not forget the long-term unemployed.
– It isn’t a guarantee: Yellen has already confirmed that a rate hike this year isn’t “an ironclad promise.” “If economic conditions unfold in the way that most of my colleagues and I anticipate, we see it as appropriate to raise rates. And, as you can see, the largest number of participants anticipate that those conditions should be in place later this year.” Remember, Yellen hinted for nearly a year that a summer 2015 rate increase was coming.
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Final Thoughts
Let’s face it: even if the central bank does raise rates, it won’t even matter much because they’ll be so minuscule. Right now, interest rates are nearly zero so 50 basis points after nearly a decade doesn’t amount to a whole lot. Allow us to borrow a line from Tennessee Williams’s play “Cat on a Hot Tin Roof” and say this: “Didn’t you notice a powerful and obnoxious odor of mendacity in this room?”
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