17 September is the date. We find out then, at the end of the Federal Reserve Open Market Committee (FOMC) meeting, whether or not the benchmark Fed Funds Rate is raised. Nearly everyone agrees that it’s likely to happen, either in September or in December. But trillions of dollars will be riding on the moment when the press release is issued on the Fed’s website telling people what exactly is happening.
Except for one thing – we won’t know exactly what will happen because the stock and bond markets may react in odd ways that are not easily predicted. The same is true for currency traders.
What it all comes down to is whether or not the FOMC thinks it is a good time to start or not. The arguments for and against are fairly easily summarized, but to Barataria the case is strong for a rise – especially if the net medium-term effect is that consumer rates go down.
Are you not working a full 40 hours a week, though you would like to? A solid 4.1% of all workers report that they are, in technical terms, “Part Time for Economic Reasons”, which is to say that they’d jump at the chance for a full time job but don’t have one yet. It’s a decent improvement from the 5.3% in this position two years ago, when we last looked at the problem, but it’s still not good.
Worse, the San Francisco Federal Reserve, who studies the phenomenon, has come to believe that it’s a feature of the new economy.
The forecast calls for the cold and stormy June to resume here in the middle of this vast continent after a brief heat wave. We’ve come to rely on weather forecasters to at least give us a guess as to what it will be like as the lazy days demand outdoor fun. Tomorrow night, for example, they tell us there is a 25% chance of rain.
But such forecasts are usually limited to the weather. Why not stocks?
The short answer is that when there’s a lot of money riding on something a busted forecast could be cause for a lawsuit. No one wants to stick their neck out too far beyond the herd because anything unprecedented is a risk not worth taking. But we’re here among friends, right? Barataria makes forecasts from time to time and this month is a good one for it. The reason is that we can see a storm brewing as stocks have gotten pretty far ahead of the “recovery” so far.
When will the Fed raise interest rates? If you ask investors, the answer is “Not this year”. Bets have been placed on bond futures which imply that the Fed Funds Rate will be no higher than a quarter of a percent at the end of the year – hardly any rise at all.
But if you ask the Fed, it’s going to come soon. Why doesn’t anyone believe them?
This is not an ordinary election year in many ways. For one, it’s not really an election year – the actual voting doesn’t happen until 2016. It’s also going to be the first Presidential election without Obama since 2004 as the White House becomes open.
But more importantly, everyone seems to understand that the economy and the politics of this nation are both changing. Stuff is seriously up for grabs. A desperate cry for attention might make all the difference.
Enter into this a bid for more Congressional oversight of the Federal Reserve, an idea backed by no less than 30 Senators, 3 of which are clearly running for President. It seems like a good idea all around – what can be wrong with more oversight? That depends on what’s being overlooked now, of course, and what can be done with existing law.
Plus, of course, we have the omnipresent Fed itself. Does it need to be reigned in?
Another quarter has come, and it arrived with good news on jobs. The stock market didn’t tank right away, but most investors agree that the daze of puffed-up valuations for everyone are over. The consensus seems to be that rather than a general fall, investors will have to be more selective and careful. This is consistent with an economy that is changing and gradually turning over, ahead of the next Big Thing that will propel a real bull market in coming years.
But where do we stand with respect to Yellen’s Dashboard – those key economic indicators that Fed Chair Yellen said she’d be watching for movement where there has been so little over the past few years? We don’t have all the data to fill in where 3Q14 stands, but we have most of it. And it all looks good. Which is to say bad, if you’re so minded, because it really does look like the Fed is going to raise rates.
The Federal Reserve of Kansas City puts on the big event every year – and why not throw a big party when your territory includes Jackson Hole, Wyoming? This year’s production concluded after presentations and official pronouncements from all the top central bankers of the world – Mario Drahgi of the European Central Bank (ECB), Haruhiko Kuroda of the Bank of Japan (BOJ), and our own Janet Yellen. It’s a must-see event if you want a front row seat for the big show of policy changes among the most powerful people in the world.
This year, the theme was “Re-Evaluating Labor Market Dynamics”, and the power players from around the world made it clear that nothing is going to change in the near future. If that sounds like the biggest let-down for a big show ever, you’re right. The Fed never intended for this to be a huge theatrical spectacular. It’s a place for central bankers to get together and agree on things. And what they agreed on, more than anything, is that in the developed world there is nothing more important than figuring out just how much “slack” there is in labor markets and how to take it up.
But it’s more exciting than it seems if you want to predict what will happen in the next year.