Fed Rate Hike- Janet Yellen won’t raise rates in Dec 2015
Most of the Global Stock Market Analyst / Brokers / Hedge funds are expecting a Fed Rate Hike in Dec 2015 but we did not feel so going by Janet Yellen speech yesterday on 2nd Dec 2015 at the Economic Club of Washington, Washington, D.C. As it is said the Devil lies in the details let’s do a closer analysis. Extracts are taken from her speech.
“On balance, the moderate average pace of real GDP growth so far this year and over the entire expansion has been sufficient to help move the labor market closer to the FOMC’s goal of maximum employment. However, less progress has been made on the second leg of our dual mandate–price stability–as inflation continues to run below the FOMC’s longer-run objective of 2 percent”
So when Janet Yellen means her dual criteria of creating of jobs and pushing inflation to 2 percent or seeing a stable inflation above 2 percent is her and the FED’s objective. She says while she is happy with the progress on Jobs, Janet Yellen is not happy with inflation being below 2 percent and since both the criteria have to be fulfilled, the latter is yet not done.
She again goes on to say “But core inflation–which ran at 1-1/4 percent over the 12 months ending in October–is also well below our 2 percent objective, partly reflecting the appreciation of the U.S. dollar. The stronger dollar has pushed down the prices of imported goods, placing temporary downward pressure on core inflation”
Once again reiterating that before raising rates she wants inflation to be stable above 2 percent.
Then she goes on to say “Turning to the factors that have been holding down growth, as I already noted, the higher foreign exchange value of the dollar, as well as weak growth in some foreign economies, has restrained the demand for U.S. exports over the past year. In addition, lower crude oil prices have reduced activity in the domestic oil sector. I anticipate that the drag on U.S. economic growth from these factors will diminish in the next couple of years as the global economy improves and the adjustment to prior declines in oil prices is completed.”
So if she raises rates higher value of the dollar which is holding down growth will add to her problems and ECB today will ease further. Means rising US rates will further hurt the growth and core inflation will move lower due to higher dollar. (Which she does not want) and further inflation will go below her estimated comfort level of 2 percent.
Then she goes on to say we are data dependent. So when inflation is stable above 2 percent at that juncture we can expect her to consider normalizing interest rates. As per Astro cycles we feel that will be on Feb 2016 as inflation will begin picking up.
Bottom line. Fed won’t raise rates now or until US inflation is stable above 2 percent.