In its recent meeting, the Federal Reserve decided not to increase interest rates, although it did make a slight upward adjustment to its GDP growth forecast for 2015. The median projection for this year has been revised to +2.1% from June’s estimate of +1.9%. This modest adjustment raises questions, especially given that the target for federal funds remains unchanged at zero to 0.25%. A closer look at the Fed’s assumptions for 2016 provides context for these decisions.
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● What conditions will prompt the Fed to raise rates? | AP
● Fed’s decision offers “breathing room” to emerging markets | Bloomberg
● Is there a future for Fed rate increases? | Reuters
Recent updates regarding US economic activity—specifically housing starts and jobless claims—provide a positive outlook for short-term moderate growth. While these figures are encouraging for advocates of a rate hike, there are still concerns about sluggish growth, prompting debates about the appropriateness of tightening monetary policy at this time. Overall, the latest data supports the notion that the US economy is continuing on a steady growth trajectory.
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Today’s Federal Reserve meeting may lead to a decision on interest rates, with an announcement expected at 2:00 pm eastern time. The question arises: why is there consideration for tightening liquidity, even minimally? Recent sluggish growth has led figures like Goldman Sachs CEO Lloyd Blankfein to suggest delaying the first hike in over a decade. He argues that the current economic data does not warrant an increase. However, the situation is complex, and many are analyzing the Fed’s decision-making process closely. There are specific data points that could justify a rate increase, despite Blankfein’s concerns. Certain models indicate that a rate hike could indeed be warranted.
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● Key considerations for today’s Fed announcement | LA Times
● Goldman Sachs warns that data isn’t strong enough for a rate hike | Telegraph
● Japan’s export growth weakened in August | MarketWatch
● The Swiss central bank maintains current interest rates | Reuters
Yesterday, the Atlanta Fed’s GDPNow model upgraded its third-quarter growth forecast for the US economy to 1.5%, according to the latest update on September 15. While this revised figure is still considered slow, it is an improvement that suggests resilience. However, it does not provide a clear enough signal for the Fed to raise rates at its upcoming meeting, which concludes with a public statement and press conference tomorrow.
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Housing starts are anticipated to decline to 1.179 million units (seasonally adjusted annual rate) in the upcoming August update, as per The Capital Spectator’s average forecast across various econometric models. This represents a slight decrease from the previous month’s residential construction levels.
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On September 15, the 2-year yield in the Treasury market reached a four-year high of 0.82%, increasing by nine basis points, according to data from Treasury.gov daily records. After several attempts to breach the low-0.70% range this year, this significant yield has broken past the previous resistance level, indicating strong market anticipation of a Fed rate increase with its upcoming public statement on Thursday.
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● OECD lowers its 2016 global growth forecast from 3.6% to 3.0% | Reuters
● A brief history of central banks’ rate hike missteps | NY Times
● Potential risks surrounding a Fed rate hike | Bloomberg
US retail sales inched up in August, showing a 0.2% rise—lower than several expectations but still a modest gain. In contrast, industrial output in August was disappointing, with a 0.4% decline from the previous month, marking the weakest performance in three months. Year-over-year, industrial activity shows signs of slowing, nearing its lowest growth rate since the US recession ended in 2009. While some may rush to conclude that the US is on the verge of another recession, I remain unconvinced at this stage, a sentiment I’ll elaborate on further.
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Overall, the current economic landscape presents a complex interplay of growth indicators and monetary policy considerations. The Federal Reserve’s decisions are being closely watched, as any changes may significantly impact both domestic and global markets.
