Economy

Is a Fed Funds Rate Hike Out of the Picture Until 2016?

With this week’s FOMC meeting being highly watched, it seems that investors have almost no fears of a rate hike — nor any reason to be elated about a rate hike — perhaps until early 2016.

What matters here is why. Sure, Janet Yellen and some Fed presidents have been vocal that the Fed should have acted earlier or that they would have liked to be able to raise interest rates. The only real argument that supports a rate hike today is the one that the Fed “will have no ammunition for assistance in the next recession if Fed Funds are at 0%.”

It turns out that the economic data in the United States and international developments just do not support a rate hike. At least not for now. The only solid move has been the equity market.

Several issues have come up of late. China’s economy was the largest reason that the Fed di not hike. That may be arguable, but it was very important.

Then China cut its interest rates. Another development was in Europe. Mario Draghi said that the European Central Bank wants more inflation. He also said that additional quantitative easing measures would be reviewed more in December — code for more easing ahead.

Elsewhere, the U.S. economic data just isn’t good. Here is a very brief checklist of economic reports:

Do we need to address Fed Funds Futures? Those futures prices do not go under $99.75 until March 2016, meaning that is the first month that real money bets have been made that Fed Funds will be at 0.25%. That is barely the case in February 2016, but as of Tuesday that is the norm.

If the data above sounds like it was cheery-picked among positive reports, the reality is that “economic reports” just haven’t been very good of late.

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