On Wednesday we predicted that the Federal Reserve would not raise interest rates in 2015. Our reasoning was as follows:
From a politician’s perspective, hiking interest rates would leave Janet Yellen and her colleagues politically exposed.
Hiking rates would cause the USD to appreciate even more, which the Fed doesn’t want to see happen.
Inflation is ridiculously low right now.
To be honest, our prediction was mostly just a guess. But since our reasoning was solid, it seems like our prediction will hold true for the remainder of 2015.
After today’s FOMC decision, it’s pretty clear that the Federal Reserve will not raise interest rates in 2015. Here are a few additional reasons that are now obvious.
Yellen could have raise interest rates a long time ago. Today’s FOMC decision shows that she is a permanent dove.
The U.S. economy was on fire in 2014. Yellen kept delaying the first interest rate hike even though the U.S. economy was strong enough to withstand anything in 2014. If Yellen isn’t going to raise rates when the economy is strong, there’s no way she’ll raise rates now that the economy is weakening.
The Fed had another great opportunity to raise rates in June 2015, but it didn’t.
Yellen is willing to use any excuse to hold off on an interest rate hike. David Tepper said it best: a 0.25% rate hike is not going to impact the economy at all. In fact, a 0.25% rate hike is more like a 0.15% rate hike considering where rates are now. But the instant the stock market falls 10% – BAM – Yellen slams the brakes on interest rate hikes. The U.S. economy will never be in perfect condition, which means that Yellen will always be able to find an excuse to delay a rate hike.
Yellen is playing fast and loose with the market. All summer long she was leaking hints that the Fed would raise rates soon. That’s why Professor Tim Duy from the University of Oregon said that even if the Fed doesn’t raise interest rates in September, it would at least make it clear when the first rate hike will be. What did we get from the Fed? Nothing. No hint, no nothing.
The Federal Reserve’s expectations for future inflation have been lowered. Since the inflation rate is one of the key data points that the Fed is watching, this postpones a rate hike even further.
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