With the start of this year's final month closing in on us, December 16 is the could be magical date when the Fed ends its long drought of higher interest rates. Though the expected hike won't be much since most are predicting 25 basis points, the pros and cons of such a move continue to be debated.
Is the economy and by proxy the market ready for such a move however small it might seem? In short, given the global picture, is the economy too fragile for even such a small hike?
As the Federal Reserve contemplates lift-off in December from seven years of near-zero interest rates, policy makers should not ignore the global backdrop.
I’m not talking about equity markets, whose tremors were instrumental in encouraging the Fed to take a pass on a rate increase at the September meeting. I refer instead to the broad-based collapse in industrial commodity prices, including oil, copper and nickel. While the 60% decline in crude oil pricesCLF6, +0.35% since June 2014 reflects both an increase in output — a result of hydraulic fracturing in the U.S. — and a decline in demand, the commodity-wide rout points to reduced global appetite for these essential industrial materials, especially from China.
With the ECB apparently set to dump more liquidity on the market and Japan's recent no-inflation-no-pick-up-in-demnd-no-cigar performance after its massive QE programs, the global picture looks indeed dismal. To suggest, then, as the author of this piece does that the Fed has done a better job than either the ECB or BOJ is indeed clutching at straws.
In some circles that would be called damning with faint praise.
marketwatch.com/story/this-economy-needs-ultra-low-interest-rates-just-to-stay-afloat-2015-11-25In some circles that would be called damning with faint praise.
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