Fed Interest Rate: Even Political Candidates are Nervous
Over the next two weeks, the Federal Reserve is expected to raise rates for the first time since June 2006… The minutes from the October FOMC tells us the Fed isn’t greatly concerned about slower global growth or volatility. They’re ready to raise rates.
But along with many of my associates, now is not the time to raise rates. The economy is not as strong as many would have liked. Inflation is well off the 2% target. And real unemployment is not 5%.
Consumer spending is lower, as well, as we just saw over the weekend, as many save their cash. October retail sales were less than expected thanks to a drop in auto sales, for example.
Even political candidates are worried a hike could damage global markets, slow growth at home, and hurt any chance of economic redevelopment.
“We can walk pretty fast now but we are still structurally impaired and cannot run,” said Mohamed El-Erian, chief economic adviser at Allianz, as quoted by Politico.com. “And the Federal Reserve action likely to come in December presents risks of both a policy mistake and a market accident.”
“The policy mistake would see the Fed tightening the U.S. money supply while Europe, Japan and China are all easing credit, creating a global “divergence” that further drives up the U.S. dollar, hurting U.S. exporters and possibly creating big corporate defaults abroad for companies whose debt is held in dollars,” notes Politico.com.
And as result, we could easily see broad stock market declines.
It’s a wait-and-see at this point… but I can tell you the Fed's likely action in December could damage the markets.