This is something Janet Yellen has hinted at over the past few months but has kept delaying.
Should the Fed raise rates, it would be the first hike in 7 years since rates were lowered to 0.25%. Prior to these past years, it was unheard of to have rates so low, and for such a long time.
With some financial experts claiming that the economy is likely headed for another recession, why would Yellen want to raise rates now? According to the L.A. Times, ”…she said one reason to raise the so-called federal funds rate… is so the Fed has the flexibility to lower it if those risks cause the economy to falter in the future.”
In other words, the claim is that Yellen is buying herself some breathing room. By raising rates now, if (and when) crisis strikes in the future, she can lower them again back to today’s levels, and thus avoid having to lower rates all the way down to 0% (or negative) and/or launch QE4.
So by next week, backed by her dubious claims that the economy is finally on solid footing, we may see Yellen increase rates rise to 0.5%. And in the coming months, she may even go as high as 0.75%.
Here’s the problem: This illusion of a recovery put on by the Fed has so many holes in it that a growing number of people are beginning to see through. And more people are also questioning, Why further stunt growth of our plodding economy by increasing rates?
Can you imagine how embarrassing it will be if they raise rates next week and the economy slows even further, or we see a sell-off in stocks? What will they do then?
They won’t be able to raise rates any higher, as it will just compound the problem. But lowering rates immediately may not work either, as it would be a huge blow to confidence in the Fed’s ability to forecast the economy, something for which they already have a poor track record.
After next week’s decision, if the Fed needs to take steps in the future to begin easing monetary policy again, the only other option it will have is to fire up the printing presses again and print money through some form of quantitative easing (QE). In fact, some experts are predicting that QE4 will be launched early in 2016.
Keep in mind that on a global level, Europe is already printing money as the global network of central banks collude and take turns in trying to prop up the frail global economy.
When it’s the Federal Reserve’s turn to print money, you can rest assured that we are nearing the end game.
But until our economy reaches that final point of no return, you can count on Yellen to continue to do whatever is necessary to keep the economy going, even if her decisions aren’t sustainable.
Is such an aimless monetary policy something you want to tie your savings to?