Tuesday, July 5, 2016

Fed will not raise rates this year

I said in our Insight newsletter early in the year that I thought the next move of the Fed would be to cut rates not to increase them. They seemed to increase rates 25 basis points-a quarter of a point-last December I think because they've been crying wolf so long their credibility was disappearing. They've been talking about a stronger economy...and, as a result, they've been forecasting that they would raise rates. I mean if you go back a couple of months they in effect said they were going to raise rates four times this year and now it looks like they may raise once or maybe not at all...

But now they look around, labor markets are certainly weak. The latest numbers for last month were extremely low with 38,000 payroll employment-that's a long way from the 200,000 average, which is none too great to begin with and the unemployment rate dropped from 5% to 4.7% but that was only because people dropped out of the labor force-they gave up and quit looking for jobs. So we've got a situation now where labor markets are weak and inflation is low, if not going into deflation, and then the Fed is now paying a lot more attention to the rest of the world...you've got a lot of factors that I think are convincing the Fed that they are, if anything, not going to raise them.