Will the Fed or won’t the Fed raise its benchmark rate 1/4 of 1% sometime this year or next?
That singular question has transfixed and captivated the world’s markets, politicians and corporate decision makers since the ‘great recession’ and the subsequent Fed move to bring the target fed funds rate down to a range of 0-.25%.
In light of the economic and employment data that has been released over the past few years I, like many others, am somewhat perplexed by the Fed’s lack of action.
Admittedly somewhat of a Federal Reserve neophyte, my question is this…
Given the current state of ‘economic expansion’ in the United States that has seen the unemployment rate drop into the low 5% range, GDP growth wavering in the 1-3% range and with inflation within shouting distance of the Fed’s target rate, how can they justify NOT raising rates even 1/4 of 1%?
As any business owner or corporate decision maker knows only too well, there are no guarantees when pulling the trigger on any move that has an unknown outcome.
In effect, by not moving rates even in the most modest of ways, what signal concerning the actual strength of the U.S. economy is the Fed sending to all of the watchers out there?
And when they do finally move will the anti-climactic nature of the event be met with a whimper rather than the expected bang?
At the same time while the discussion concerns a move to a .25% rate, do not forget that historically the average rate for ed funds has been around 4%!
Given the reticence of the Fed to move in even the most measured and minuscule way given all of the data mentioned above, when if ever will we ever see a return to historical levels of interest rates across all of the sectors of the bond market?
And finally, while stock market investors have benefited greatly by playing in the ‘only game in town’ within a 0% rate environment, savers and retirees have been slammed by the almost nonexistent returns on their money. That, or they have been forced to take on more risk to reach for that return.
If anyone has any answers or thoughts concerning the above that can provide some modicum of clarity, it would certainly be welcomed!
Michael Haltman is President of Hallmark Abstract Service in New York.