Rapid Reaction: Experts Say There Will Be No Rate Hike Until After The Election
The Federal Reserve held off on increasing interest rates this month, even though it says the US economy is less susceptible to risks and the labor market is tightening.
Following a two-day meeting in Washington, Federal Open Market Committee members said they'll continue to monitor the economy’s progress, specifically where inflation and global developments are concerned.
Given the volatility of the global economy, and the huge swing from May’s extremely low jobs report to June’s high numbers, Bisnow asked two top economists if the economy is strong enough to withstand another rate hike this year. Here's what they had to say.
Jack Kern, Yardi director of research and publications
"The current level of most indicators show some support for the consensus belief that the economy is fundamentally sound and gaining some strength. While many of the sectors are seeing a slowdown, which partially comes from seasonality, the Fed finds itself on very narrow footing.
Not only are they likely to avoid taking a stand during the convention cycle of the election out of an abundance of caution, but they have the luxury of some time to see how the economy changes throughout this quarter. There was really no reason for them to make a statement at this time as their position remains unchallenged; that they will raise rates opportunistically when all of the indicators provide a confidence level.
In my opinion, they will not let this year pass without at least one raise and potentially two. They recognize they have to restore confidence in the growth of the US economy, especially in light of the changes in the EU and growing tensions with Russia."
Rajeev Dhawan, Georgia State University economist
"There will be no movement in rates until the election is over. That is why the market has been on a climb in the face of good-looking employment numbers of June, on paper.
They, like the Fed, need more momentum in income/GDP growth before they BOTH can get comfortable with the Fed pulling the rate lever again. The economy is barely on a 2% growth path, when smoothed out, and for it to get to the 3% threshold level, it will need the rest of the world to cooperate—aka grow better.
And given the Brexit-led uncertainty, Europe’s slowdown in hospitality from terror strikes, low oil keeping Mideast investments at bay, and China’s self-engineered slowdown and its inability to ramp up growth, it looks a bit unlikely to happen in the next six months. One dissent, by a perennial dissenter, doesn’t change this narrative, especially for FOMC chief Yellen."