Wednesday the Federal Open Market Committee (FOMC) gave no date for an interest rate hike, leaving analysts and economists speculating as to when the long anticipated .25 percent increase in the federal funds rate, which now officially stands at “zero to .25 percent,” will come.
Following the Fed’s official statements issued after FOMC meetings has become almost comical.
The New York Times sees September as “looking likelier” for the increase. That’s because, according to the Fed’s statement, the economy continued to expand at a “moderate pace, which is driving solid jobs gains and declining unemployment.”
Ignored is that many people have quit looking for jobs and that many jobs taken are second part-time jobs to supplement other part-time jobs, hardly signs of “solid jobs gains.”
The Financial Times says the Fed “signalled that it remained on course to lift interest rates this year but left its options open on when to pull the trigger as it waits more evidence of the strength of the recovery.”
Chris Low of FTN Financial says, “But they are still waiting for more good news before they actually pull the trigger.”
Distressing the Fed is that inflation is running far below its target rate of 2 percent. Year over year through May, it registered only .2 per cent. It used to be that one of the Fed’s mandates was to contain inflation; now, one of its goal is to cause inflation.
(As discussed in “Is 2 percent inflation enough?” there are establishment economists who question the 2 percent target, asking why not 4 percent?)
The New York Times noted that investors pushed stock prices higher on the Fed’s announcement Wednesday. However, Thursday stocks failed to follow through.
I suspect that Yellen and Co. fear a major stock market decline on any rate hike announcement. I further suspect what they would like to see is rising stock prices in the weeks following FOMC statements that suggest a rate hike is coming soon. Rising stock prices would suggest that the markets had priced in a rate hike and therefore the FOMC was free to move.
If this is the case, stock prices over the next six weeks will give us a clue as to whether we’ll see a rate hike in September, or December or maybe in 2015.