Janet Yellen, head of the Federal Open Market Committee (FOMC) and her voting colleagues have the following mandates:
Maximum employment, stable prices, and moderate long-term interest rates–in the Federal Reserve Act.
Last week Donald and I went opposite directions on this weeks “Elephant in the Room” event, the FOMC rate raise conundrum.
Can the FOMC abide by their mandates and raise rates? Let’s review!
Rates are currently – ZERO!
This Thursday, September 17th, the FOMC formally announces IF they are going to raise rates or not. We think they should … it is long overdue.
Donald says they will not, I am in the camp that they do — He is “The Brain” though!
Here is why they should raise rates:
Unemployment Rate is Great !
JOLTS – Job opening report following by FOMC is screaming – NICE
Here is why they might NOT raise rates-
No signs of inflation – Their goal – 2% — currently around 1.5%, but heavily influenced by the fall in energy prices!
Stable Prices ? – Nope
And how about some ribbing from fellow countries — note– these are NOT part of the direct FOMC mandate — the ribbing has come anyway–
- IMF (International Monetary Fund)- Janet Lagarde – President of IMF – “Please don’t raise rates” – Economist
- BIS (Bank of International Settlement) – “Raising rates will crush Emerging Markets” – Telegraph of UK
I think they finally will raise. My reasoning comes from the hours of Jackson Hole interviews – All of which I listened to several times – to all board members that spoke to the media – They all (but one) seemed ready to move, this event occurred several weeks ago.
Oh — Many say markets will have a 5-10% or even 20% pullback when they begin raising – Just like the world stopped on Y2k — Nope !
Should be interesting!
Have a great conundrum Monday!
John A. Kvale CFA, CFP