Monday, December 14, 2015

Economy: Federal Reserve - No More Procrastination Please

(Drivebycuriosity) - The countdown is ticking. Next Wednesday on 2pm US Eastern time we expect the decision of the Federal Reserve. Will they finally hike interest rates?  Janet Yellen & Co. hesitated two times - on September 17 and October 28.  I think this was a mistake. A zero interest rate is not appropriate  for a growing economy and gives the wrong signals to investors and consumers: The US job market is growing with a solid speed (about 200,000 new jobs per month, unemployment rate is a  5.0 and wages are climbing about 2% annually), retail sales are recovering (a sign that consumers are responding to cheaper energy) and the service sector (around 273 of the economy) is advancing. Even China, the other center of the global economy, is recovering (driveby).

The downward pressures on inflation (deflation risks) are abating, even that oil price are still falling. People don`t buy crude oil, the need gasoline. Gas prices at the US pumps are sinking much slower than the price of oil ( Today the US average gas price is hovering at $2,01, just one cent below the trough from last January. In 2016 the inflation rate will be calculated in comparison with today´s low prices.

Fed´s indecision creates uncertainty and is holding back stock market & economy. The hesitating Federal Reserve members are discouraging investors, consumers and (potential) employers. A modest interest rate hike - maybe just a quarter of a percent point - would demonstrate optimism but keeping  loans still inexpensive. This step would give stock market and investors some confidence. It is time to hike - please Mrs. Yellen & Co. don´t procrastinate anymore.

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