The Federal Reserve has said for the past couple of months that it will raise interest rates this year. Economists and financial experts say the most likely time Fed Chair Janet Yellen will boost rates will be in September. However, due to numerous weak economic data points, the first rate hike in nine years could be delayed a little longer.
What Will the Fed Say This Week?
This week, the Federal Open Market Committee (FOMC) will meet and release a statement at the end of that meeting. The statement will face intense scrutiny to determine if a rate hike is coming this year, or if at all.
See Also: World Bank to Federal Reserve: Delay any rate hike until 2016
Pundits note September is the likeliest time to boost rates, but the Fed says any decision made will be done so based on the latest economic data. Although it’s suggested the labor market is improving and the greenback is rising, there are still various other threats that could deter a rate hike. Pay growth is pretty much non-existent, U.S. manufacturing and business investment is low, confidence among small business is in the doldrums and there are millions working part-time unable to land full-time work.
If the Fed does raise rates then it will do so only gradually, which means it’ll be inconsequential. Right now it’s at near-zero and a rate hike would mean 25 basis points. But Yellen is being told from many fronts to hold off on a rate hike. Congress urged her to delay a rate increase until 2016 because inflation is still below two percent, while the IMF and World Bank say the U.S. central bank should wait further until the first half of next year.
There’s also cause for concern that postponing a rate hike will further add air to the various bubbles inflicting Wall Street in tech, social media, bonds and other assets. Right now, there are serious worries regarding a second edition of a dot-com bubble.
Whatever the case, it’s quite possible a rate hike could be delayed until December. Others believe the Fed will boost rates just once and then wait for a period of time before deciding what to do.
Peter Schiff, CEO of Euro Pacific Capital, doesn’t think Yellen will raise rates at all because of all of the debt and weak economic factors.
“I believe that the Fed wants us to think that the economy is strong, in the hopes that perception may one day soon become reality,” Schiff said earlier this summer. “But I do not believe the Fed has any actual intention of delivering the rate increases that it may expect will damage our already weak economy.”
This is what happens when the people, who think they’re smartest in the room, take control over interest rates. With market rates, you don’t have this level of uncertainty, fluctuation and indecision. If you allow the market to determine rates then you won’t experience substantial distortions in the marketplace, produce unnecessary credit expansion and create widespread panic.
The stock market hones in on every word the Fed says, which shouldn’t be. The Fed’s word is gospel.
See Also: June the biggest month of IPOs since dot-com bubble in Aug. 2000 – is a crash imminent?
Here is a remarkable statement from economist Ludwig von Mises:
“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
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