posted on 10 November 2015
by Michael Haltman
The Federal Reserve has a dual mandate: Stable prices and maximum employment!
Given the state of that mandate vis a vis the current condition of the U.S. economy, the answer to the question of if and when the Fed will begin to raise rates is that no one knows.
But nonetheless that question has become the fodder for incessant speculation by pundits, economists and analysts worldwide!
And the truth is that once the Fed does begin to move, it will undoubtedly be an exceedingly slow process to the point where interest rates can be considered 'normalized'.
But whatever the Fed does or does not do, that decision whether by omission or commission will impact markets, economies and central banks around the world.
Janet Yellen, Chair of the 'data-dependent' Federal Reserve, insists that a December rate hike is not out of the question while fed funds futures trading after the October jobs number indicate the belief by the markets that there is a 70% chance for it to happen.
To recap the October jobs report, on Friday the unemployment rate ticked down to 5.0%, a number not seen since 2008. There was also an add of 271,000 non-farm payroll jobs with only +180,000 estimated and wage growth rose 2.5% year-over-year.
But, while the employment picture in the U.S. appears strong inflation, the other piece of the Feds mandate, remains below the target rate.
Additionally, as discussed in the article 'Analysis Of The October Jobs Report: What Does It All Mean?', there were parts of the employment report that showed an economy that still has some risk of sliding back towards recession.
So Will The Fed Or Won't The Fed Raise Rates This Year Or Next?
In other words is the economy showing good signs of strength while at the same time inflation is present yet under control?
Of course given the Feds prior reticence to make a move along taken along with speculation that there may be some political aspects to the FOMC's decision-making process, the answer is that it is anyones guess as to what they will do!
These nine charts showing various aspects of the U.S. economy, however, tell me that if I were a betting man the answer to the question of whether or not a rate hike is imminent would be no.
But again, your guess is as good as mine!
1. Spike in federal debt - Normalized rates would put a heavy burden on the federal government in terms of debt service.
2. Growth in the Monetary Base or the amount of money in circulation plus the amount of bank reserves held by the Fed has soared.
3. Wage growth, despite what can be termed as full employment, has remained stagnant.
4. The civilian labor force participation rate is hovering at 30-year lows.
5. Labor Share, loosely defined, is the amount of national income that labor or workers receive.
6. SNAP, or the Supplemental Nutrition Assistance Program that some might remember as Food Stamps, has steadily (although there has been a slight recent decline) which one would not expect in an improving economy.
7. Debt, including consumer and student loans, has soared which may be a sign of consumer confidence or may be a sign of consumer need. Either way if rates rise the increase in the monthly payments for those with adjustable rate debt could prove debilitating.
8. Homeownership has declined which may be attributable to the bad taste left in consumers mouths after the financial crisis, the inability to be approved for a mortgage, the inability to come-up with a down payment, fear of making a large financial decision due to uncertainty surrounding the stability of employment or perhaps the fact that in some markets home prices have soared making the rent vs buy decision difficult to make.
9. Median household income would be expected to improve in an improving economy yet, in this recovery, that has not necessarily been the case.
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at firstname.lastname@example.org.
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