Weak US Economic Data Forces Federal Reserve to Postpone Rate Hike
Weak US Economic Data Forces Federal Reserve to Postpone Rate Hike
April 19, 20151:08 PM MST
This week the Federal Reserve, citing fundamental weaknesses throughout the US economy, announced that it would not raise interest rates anytime in the near future.
By postponing rate hikes but again, the Fed is quietly signalling its agreement with the growing consensus of economists and investment managers that the US economy, buffeted by the same economic headwinds that are sending Europe and Japan into near-recessions and slowing China's growth, is in considerable trouble.
On Friday April 18th these fears sent financial markets in Asia, Europe, and the US into turmoil. The Dow, down 279 points, is lower than it was in November 2014.
There are few bright spots in this economy. Hiring in the US has slowed significantly in March. Consumer spending has been dropping over the last half-year. Industrial output is in a downward trend. The home construction industry has been in a veritablerecession for the last several years.
Worse, the Atlanta Federal Reserve forecasts that GDP growth in the first quarter of 2015 might come in as low as 0.1 percent. Some fear that number might be adjusted down even lower and reveal a US economy actually in contraction. This would be the second time in a year that nation's economy has contracted instead of expanded--the GDP declined by 3 percent in early 2014.
According to Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, “Data available for the first quarter of this year have been notably weak." This weakness is "giving rise to heightened uncertainty about the track the economy is on.”
The next "target date" for raising interest rates will most likely be September, 2015. Between now and then there is plenty for the Fed to ponder.
The US debt is headed toward $20 trillion dollars, and now stands at a record 104 percent of GDP. The number of Americans out of work has just topped 93 million. Masses of millennials are unemployed or underemployed. Wages are shrinking. Americans are buying fewer new homes than they did in 1963, when the population was only 180 million. Corporate profits are weak. Tapped-out Americans must now find the money to pay skyrocketing health
care premiums and deductibles.
However, the Fed is in a bind. Its zero-interest rate policy has become a hidden tax on the middle class, robbing Americans of trillions in lost interest payments on savings since 2009. But if the Fed raises interest rates, it is feared that investors might rapidly move money out of stocks and into safer fixed-income instruments such as bonds or money market funds.
Clearly, the already weak US economy could fall into recession this year or next if the correct monetary and fiscal policies are not forthcoming.
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