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To Raise, or Not To Raise,

When Will The United States Federal Reserve Tell Us?

The world awaits. To raise or not to raise interest rates, that is the question for the United States Federal Reserve. For months now, forecasters and traders all around the globe have been reacting to the hint that the United States will enact their first interest rate hike in nearly a decade. Seven of Wall Street’s top banks were expecting a hike in September. According to a poll conducted this week by Reuters, forecasters were betting on a sixty percent chance that the Federal Reserve was going to raise rates. Now according to a poll taken this week by Reuters, 72 of 93 forecasters have chosen December as the month the prices will lift off. Those that are certain about the hike were also as confident about a rate hike forecasted to occur last June.

 

 

According to Fed Chair Janet Yellen, both the global markets and China’s vast stock market selloff were solid reasons to take the wait and see approach. Just weeks earlier she was urging the US Central Bank to raise rates. Now it seems she is making long strides in the opposite direction. So what exactly is Yellen waiting for?

Think of it this way. The United States full growth economy is at around 2.2%. U.S. unemployment has improved by almost 50 and held at 5.5% in February. If the United States had specific financial goals before enacting a rate hike, it looks like most fiscal goals have been met. So why does Janet Yellen keep the cost of borrowing money at virtually zero in her country?

Janet Yellen

What The Federal Reserve might be skittish about is the falling prices of commodities. While China became one of the largest importers of world commodities, their inflation ran sky high. Still China didn’t want to adjust their currency. The truth is the problem for China was exacerbated by the Chinese government trying to hold currency low and fastening it to the American dollar. As Chinese stocks have begun to rally slowly these recent weeks, limp Chinese manufacturing data released Wednesday triggered a drop in U.S. markets. Obviously worries about the state of the global economy are being given more weight than realized.


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Increasing U.S. interest rates, will also raise rates on U.S. government borrowings. When this happens there is plenty to be concerned with if you are Yellen. A study done this year by the Center for Economic and Policy Research estimates that increased interest rates it will add $1 trillion to $2 trillion dollars to the U.S. debt factored over the next decade. Naturally, a debt increase of this magnitude could lower infrastructure spending or require raising taxes or cutting government programs. The result would have a negative effect on the U.S. economy.

As Yellen sits in her wait and see holding pattern, fiscal scholars are blogging about how her inactions will cause additional global instability. In some cases, her indecision has prompted outright condemnation. None of the pressure seems to have had any effect on her. As it stands now, The U.S. Central Bank will continue to loan cheap currency at rates of zero to .25 percent.
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If you take a look around the globe, it seems many economies are slowing down. Europe is deep in recession. China was not able to make their GDP estimate. Low oil prices spell a coming disaster for Middle East countries, and also Russia and Brazil. Not so in America. The low price of petroleum has helped to keep inflation rates down in the U.S… With inflation held low, the Federal Reserve does not have to rush to raise interest rate at the moment. So they haven’t. If the Federal Reserve moves interest rates higher, it will surly strengthen the American dollar. The higher cost of money, on the other hand, will make it more difficult for the United States to export their goods. It’s a quandary for certain.





0 responses to “To Raise, or Not To Raise,”

  1. […] Suckers writes about interest rate rising… or not! I it will and I think the FED must raise interest rate for the good of the […]

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