US Fed Working To Maintain Fed Funds Rates At Zero+
The US Fed fearing recession in Y 2016 will not raise interest rates in the election year.
Demand damage in the US jobs market and factory activity will keep Fed Chairwoman Janet Yellen from bowing to FOMC hawks to raising costs to borrow for consumers and businesses. However, we will hear Ms. Yellen and her crew jawbone the subject as they have in the past few months say over and over again that a rate hike is coming later this year.
The current make up of the Fed governors leans to the left, and is led by Janet Yellen. That being the case we might not see a rate hike until Y 2017, even if conditions improve, which is unlikely.
Two years ago, US President Barack Hussein Obama nominated Ms. Yellen to take over the central bank. A Republican-dominated Senate last year confirmed her as Chairwoman, making her 1 of the most powerful women in the world to a financial magazine and prominent news service.
The Fed has held rates at Zero+% Y 2008, when the US economy declined the most since the Great Depression. The central bank also pumped trillions of dollars into the financial system by buying government and mortgage debt in 3 QE (quantitative easing) programs. And it is likely that we will see QE-4 before a fed funds rate hike.
As we have seen and I have written about in this column the US Fed has created the bad is good economy scenario, that will not change anytime soon.
The September NFPs report showed that the US economy added 142,000 workers in September, missing Wall Street estimates for 203,000 jobs. The percentage of working-age Americans in the labor market fell to 62.4%, the lowest in 38 years, as 579,000 people gave up looking for a job, according to the US Department of Labor.
The S&P 500 rallied more than 3% after the jobs report on 2 October as participants speculated that the Fed will push back its rate hike, speculated for October. The delay will mean a weakened USD, and rally in commodities as we are seeing now.
Eric Rosengren, President of the Federal Reserve Bank of Boston, still expects the central bank to raise interest rates by December despite the jobs report. “We need to understand whether it was an anomaly or whether it was symptomatic of greater weakness in the economy than we were expecting. One report alone does not tell us that, so we’ll have to see the incoming data.” What he did not say in that statement was the the August number was revised sharply down to about 134,000. Humm.
The unemployment rate held steady at 5.1% in September, while the percentage of workers who are working part-time and want a full-time job fell to 10%, the lowest since May 2008, from 10.3%.
Mr. Rosengren said he would delay hiking rates until next year if the data is “weak enough that either the unemployment rate is going up, or that growth looks like it’s going to be less than 2 to 2.5%, over 2-H of this year.”
The Fed will do all that it can to not turn the White House over to the Republican in the coming cycle.
Stay tuned…
HeffX-LTN
Paul Ebeling
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