RE:no rate hike is bad for economy?https://news.goldseek.com/GoldSeek/1442494200.php
Try making up for a past mistake and make another? That’s playing from behind, if you will, and it’s not out of the question if you know the Fed’s history:
1. Not a single post-war recession has been predicted by the Fed a year in advance, according to former U.S. Treasury Secretary Lawrence Summers; and
2. Neither of the last three recessions were recognized until they were already under way.
Incompetent or ulterior motives for policy?
Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world is easing.
What’s notable for investors is that since the 2008 crash, we have not been able to achieve new market highs without central bank stimulus. Full stop.
But it’s only a quarter point…
According to a study released by McKinsey Global Institute in February of this year, global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming nothing more than a currency game; and the currency game is a relative one. I print, you print, they print, but who’s printing more and where is capital flowing in and out of? Within this context, a quarter-point rate hike would be much more than simply symbolic.
As we have seen since late 2012, the rise in the U.S. dollar has had major implications on global markets, whether it be currencies, commodities or interest rates. A rate hike would equate to further USD strength and will accelerate the deflationary spiral we have witnessed over the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to recession in 2016.
Conversely, no rate increase does not meet the expectations set by the Fed and will re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4 as well.
So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don’t raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus.
As always, government remains the No. 1 risk to financial markets, and I will change my views as the facts change.
“The Federal Reserve is not currently forecasting a recession.” – Ben Bernanke (January 2008)