The chair of the IMF called for the Federal Reserve Board (FRB) to wait until 1^st quarter 2016 to raise rates; citing economic instability across the globe as a potential problem if the US takes action more quickly.

Here are three reasons the FRB is going to tell the IMF to go pound sand…

1. Data, data, data… The FRB is going to act on US economic data and data only. The Fed has made it extremely clear that their actions will be data dependent. This means that action could take place later this year, however if the economy does not improve at the anticipated pace, FRB action will be delayed. Last year many would have expected that action would have taken place by now, and the lack of strong economic data is why action has still not occurred.
2. The FRB has very specific mandates and they have nothing to do with securing the global economy. The mandates are to contain inflation and promote full employment. The FRB chair, Janet Yellen, is well known as an employment focused chairperson. On initial examination the unemployment rate increasing to 5.5% would lead one to think that may delay FRB action. The increase in rate occurred because of an increase in participation as workers become increasingly optimistic about the job market. To the contrary, the Core Personal Consumption Expenditures rate, the FRB’s preferred measure of inflation increased 1.2% over the last 12 months. Well below the 2% mandate.
3. The FRB program, Quantitative Easing, contributed to the anemic European environment over the last five years. Through weakening the dollar and promoting large cap profit margins the US was able to regain a positive economic footing. The issue is that it came at the expense of European economies. If the FRB cared about the IMF’s opinion, they would not have undertaken a monetary policy that would have put a death grip on European exports.

So FRB action is being telegraphed by economic data and is very likely to not be swayed by the opinions of the global community. Chairperson Yellen has a domestic agenda and one that she will not sacrifice. Her efforts are to keep our economy functioning at what seems like an optimal level for this current expansion.

For more information:

If you would like to receive this weekly article and other timely information follow us, here.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.