The Federal Reserve has decided to keep interest rate levels at near zero, for now. There has been some question as to why the Fed has left rates unchanged when the U.S. economy seems stable. Below our Chief Investment Officer, Charlie Smith, participates in a brief Q&A on the Fed’s decision and what we can expect next…
Q. Why do you believe the Fed chose to leave rates unchanged?
A. The Fed left rates unchanged because they believe that overseas economic growth, particularly in the emerging markets and China, has slowed to a level which risks harming U.S. growth should it deteriorate further.
Q. Do you anticipate a rate hike later this year?
A. We believe the Fed would like to begin the process of interest rate “normalization” as soon as possible, but they are constrained at the margin by weaker growth overseas. Therefore, any further weakness in China and emerging markets in general would cause them to continue to postpone any increase. Any turnaround in growth would do the opposite. As Janet Yellen has been saying all along, they are data dependent.
Q. Will a rate hike impact consumers dramatically, or will a nominal affect be felt?
A. We believe a 25 basis point increase would have minimal impact on consumer behavior. Any Fed move is more about financial market sentiment than real economics at this point.