…I expect the Fed to keep rates very low for a long, long time…[and] here are the 3 main reasons why I think the Fed won’t lift rates anytime soon…
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Reason #1: No Inflation
Before the Federal Reserve lifts interest rates further, it needs to see clear signs that inflation will hit its 2% target. However, cheap energy and falling commodity prices have kept inflation extremely low, and that isn’t going to change anytime soon.
The Fed will wait for “further improvement in labor market conditions and a return to 2 percent inflation” to go further with interest rates.
Reason #2: No Economic Recovery
The reason a central bank raises interest rates is to slow an overheating economy yet we have only scant signs of economic growth, much less overheating. For example: The Fed’s March report on industrial production showed a 0.5% drop in February after increasing 0.8% in January.
Reason #3: No Wage Growth
The U.S. is a consumer-oriented economy, but American wages have been stagnant for years. In fact, adjusted for inflation, the average yearly wage for American workers has not increased since 1973.
A big reason for the wage stagnation is the dramatic increase in employer-sponsored healthcare costs – while total compensation is rising, the take-home paychecks are not.
All of the above will likely deter the Fed from raising rates any further.
Another round of QE is more likely
I believe we’re much more likely to see another round of quantitative easing before we see a rate hike. John Williams of the San Francisco Fed hinted at this when he said the Fed could “clearly” lower rates again if needed, and use other tools “if necessary.”