Fed Targets December to Raise Federal Funds Rate – Really?
Despite the Fed’s previous stated intentions to raise the federal funds rate sometime in 2015 no increases have been approved so far. However on October 28th the FOMC announced “in determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation.”
That speculative announcement caused investors to immediately reevaluate where rates are going, and as expected the stock market experienced a measure of volatility, albeit relatively short-lived. According to economist Aneta Markowska, “By specifically referring to that meeting they are basically testing the waters a bit.” So is this the Fed’s way of indirectly communicating to the market to brace itself for an impact that is both inevitable and incalculable? – Hmmm?
It seems the answer to this question remains perplexing to everyone. Central bank policymakers are optimistic and cite “growth in consumer spending and business investment” as evidence the economy continues to improve. But considering “U.S. employers slammed the brakes on hiring in August and September” what makes the Fed conclude December employment stats, among other analysis inputs, will change significantly enough in just a few weeks to justify pulling the trigger on bumping up the federal funds rate?
After months of indecision by the Fed to raise the federal funds rate sooner rather than later it dawned on me that if had I received $1000 for each time some economist, investment advisor, business owner, etc. said “the Fed is seriously considering a rate hike…” I would have a nice down payment saved up for a home, vacation property, or an investment rental.
Okay, let’s awesome December it is. I can hardly stand the excitement considering the country is 15-20% into a presidential election cycle and the health of the economy is key to each party’s strategy. But if anyone from the Fed reads this rabble-dabble of mine can you please please please explain to the country how you concluded raising the federal funds rate even marginally – say 25 basis points – is going to suddenly stall or cripple the U.S. economy? Personally I believe the very obvious line in the sand to normal monetary policy is miles behind us but as they say hindsight is 20/20.