No matter what Janet Yellen decides to do regarding interest rates she will be second guessed. The true measure of success will be when the Federal Reserve Board (FRB) leaves the current policy setting without causing the next recession.

Last week the FRB chairperson, Janet Yellen, announced revisions to expectations for growth in the U.S. Those revisions led them to project the Federal Funds Rate at 0.625% at year end, revised down from 1.125% from the previous meeting[1]. This modification leaves room for the FRB to delay the initial rate hike that was originally projected for June.

I do believe the decision to hold off on a rate increase is the right one. Our economy, while expanding, is facing enough headwinds without the added stress of increased rates.

Oil prices continue to be a strain on the economy even though the announcement last week caused prices to rebound. Since reaching a high on August 31, 2014 at $110.53 a barrel, oil closed at $46.58 as of March 20, 2015[2].

Much like last year a harsher than expected winter is suspected of causing softer than expected economic performance. Housing starts in the month of February fell 17% or 184,000 from January. Definitely a concern for a real estate market that performed so strongly last year. A good sign that the stagnation could be getting some help is that building permits increased 3% or 32,000[3].

While I agree with the implied decision to forestall interest rate increases, there is a risk of waiting too long. We spend so much time discussing the risk with raising rates too soon, but we never discuss the risk of being too soft on rates. Should the decision to raise rates take too long to occur, we run the risk of seeing runaway inflation. Their action could come when the inflation curve has already grabbed hold and the FRB could need to accelerate so quickly that it could crash our economy.

All that said our FRB does not have an easy job in navigating this uncharted territory. It could be said that Ben Bernanke had the easy job in throwing money at the economy. Janet Yellen now has the distinct pleasure of trying to get out of the mine field left it QE’s wake.

International

Greece is agreeing to furnish the European Union (EU) with an overview of economic reforms being proposed. German economic data showed strengthening conditions for the central cog in the EU. Japans trade balance (or imbalance) improved to -425B in February from -1.178T in January[4]. Much of which is attributable to the fall in oil prices.

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[1] www.mfs.com – week in review

[2] www.investing.com – commodities

[3] www.investing.com – economic calendar

[4] www.investing.com – economic calendar