Will the Fed Raise Rates?
The recent stock
market volatility, the concerns over China’s slow down, and the growing concern
over Europe again have combined to create a great deal of uncertainty regarding
the Federal Reserve’s actions in September.
For the majority
of the year they have been stating they will be raising the short term interest
rate for the first time in 6 years from essentially 0 to 0.25%. This would be a
bright signal that the US is doing very well; our economy is still building,
growing and stable.
BUT, now all of
the markets are on pins and needles regarding this forecasted decision.
If rates go up so
will mortgage rates most likely. A 0.25% change is significant when our rates
are hovering around 3.5-4.25% this could be a change of 5-7% in the cost of
financing.
So now it seems
that all the prognosticators are looking for today’s Jobs Report. If our jobs
are anything but spectacular, most think that the Federal Reserve will just
wait until December or next spring to make a change.
CNN Money had
this great article regarding this:
“We will find out
how many jobs America's economy added in August and whether wages are finally
growing.
But this time the
news goes beyond jobs and wages -- a big decision looms in less than two weeks
for America's central bank, the Federal Reserve. And it seems to be coming down
to the wire, where the jobs report could be the deciding factor.
"It should
weigh heavily on the Fed's decision in that meeting," says Sal Guatieri,
senior economist at BMO Capital Markets. "This report takes on elevated
significance."
The reason is
that the jobs growth would confirm the view that the U.S. economy is recovering
nicely and strong enough to withstand higher interest rates.
Here's the
dilemma: the stock markets are extremely jittery right now because of concerns
over China's economic slowdown and its effect globally.
So the Fed could
raise rates on September 17 and potentially risk creating even more volatility
in global stock markets.
Or the Fed can
wait and hope -- with no guarantee -- that things will be calmer in a few
months when it meets in December.
Experts are
split. Some say a rate hike is coming in September while others say the Fed
will wait.
"My sense is
that the Fed will raise rates" in September, says Peter Boockvar, chief
market analyst at the Lindsey Group.
However, others
feel differently. Barclays economists say a rate hike won't come until March of
2016.
"September
liftoff is pretty much off the table at this point," says Jesse Hurwitz, a
Barclays economist.
Related: Is the
Fed trapped now? Rate hike remains elusive
The uncertainty
only adds significance to the jobs report on Friday.
If the jobs
number is good tomorrow -- say north of 200,000 jobs -- it could clear the way
for the Fed to justify a rate hike. If it's bad or mediocre, then the path to a
rate hike become more clouded.
Recently, the
U.S. economy has been performing pretty well while the global economy has
slowed and international stock markets have taken a dive.
The Fed typically
focuses on two key factors -- a good job market and steady inflation. The job
market has kept up its momentum this year but inflation is nowhere near the 2%
mark that the Fed likes.
Volatile stock
markets can make the decision harder. Last week, New York Fed President William
Dudley said a September rate hike was "less compelling" after all the
market volatility in August. Other Fed officials aren't giving much clearer
guidance one way or another.
A September rate
hike seemed like a sure thing in July. Markets were overall okay and the
economy was doing well. But the recent market volatility throws a September
rate hike into question. The August jobs report coming out tomorrow could
provide the answer.
