{"id":69945,"date":"2015-03-23T05:02:09","date_gmt":"2015-03-23T09:02:09","guid":{"rendered":"http:\/\/countingpips.com\/?p=69945"},"modified":"2015-03-23T07:11:52","modified_gmt":"2015-03-23T11:11:52","slug":"weak-economic-data-keeps-rate-hike-at-bay","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/03\/weak-economic-data-keeps-rate-hike-at-bay\/","title":{"rendered":"Weak Economic Data Keeps Rate Hike at Bay"},"content":{"rendered":"
March 23, 2015<\/div>
\r\n<\/div><\/div>

By WallStreetDaily.com<\/span><\/a> \"Fed<\/p>\n

By Chris Worthington<\/a>, Editor-in-Chief of Income<\/em><\/p>\n

They say a picture is worth a thousand words\u2026 but could a single word be worth nearly half a trillion dollars?<\/p>\n

Based on last Wednesday\u2019s Fed release, it appears that it can\u2026<\/p>\n

You see, investors were anxiously waiting to see if the Fed would remove the word \u201cpatient\u201d from its FOMC statement.<\/p>\n

Of course, it did\u2026 though Fed Chair Janet Yellen warned that removing the word \u201cpatient\u201d doesn\u2019t mean the central bank will be impatient<\/em> with its rate hikes.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

Investors considered this a sign that a June hike is unlikely, which was welcome news. The S&P 500 responded by climbing from an intraday low just prior to the Fed release to an intraday high two hours later. S&P 500 constituents gained more than $400 billion in market cap during that period.<\/p>\n

Simply put, the Fed blinked\u2026 and based on its latest report, I\u2019ve come up with five reasons why the Fed funds rate will stay at zero<\/a> until at least September.<\/p>\n

1. The Dollar Is Too Damn High<\/strong><\/p>\n

Perhaps the biggest reason why the Fed has pumped the brakes on its rate increase is the strong U.S. dollar. The world\u2019s reserve currency has been on an epic run, with the Dollar Index Spot Exchange Rate (DYX<\/a>) gaining more than 25% since its 52-week low in early May 2014.<\/p>\n

That\u2019s not necessarily a good thing for the U.S. economy, though. The dollar\u2019s strength is putting pressure on exports, since U.S. goods become increasingly expensive for foreign buyers as the dollar goes up. Meanwhile, U.S. multinationals face declining overseas revenue<\/a> as foreign currencies lose value versus the dollar.<\/p>\n

Perhaps most importantly, though, the strong U.S. dollar is putting pressure on emerging markets that have accumulated substantial dollar-denominated debt. According to the Bank for International Settlements, the stock of dollar debts owed by non-financial borrowers outside of America has risen 50% since the financial crisis. As the dollar continues to rise, these debts become more expensive \u2013 and when the Fed eventually raises rates, the interest charged on dollar debts will go up, as well. That\u2019s a tough one-two punch for markets that are already struggling with slow growth.<\/p>\n

2. Inflation Remains Stubbornly Low<\/strong><\/p>\n

Inflation dropped even further below the Fed\u2019s long-run target of 2%, and the FOMC was forced to revise its outlook downward. The dollar has contributed to this issue, since imports are cheap (and getting cheaper) as the dollar continues to rise, but energy prices are largely to blame.<\/p>\n

You see, even though the core personal consumption expenditures (PCE) price index \u2013 a popular measure of inflation \u2013 excludes energy, the secondary effects of cheap energy are widespread. Thus, as long as the price of oil remains depressed and the dollar stays strong, inflation will likely linger below the Fed\u2019s desired level.<\/p>\n

3. The Economy Stinks<\/strong><\/p>\n

The U.S. economy isn\u2019t as strong as the Fed wanted us to believe. Of course, if you\u2019ve been reading Wall Street Daily<\/em>, you already knew that growth expectations<\/a> were off base in December. Now, first-quarter gross domestic product (GDP) growth could be as low as 0.3%, according to the Atlanta Fed\u2019s GDPNow<\/a> model. Meanwhile, the Federal Reserve\u2019s full-year growth expectations were revised downward from 2.6% to 3% to 2.3% to 2.7%.<\/p>\n

On top of that, wage growth remains stagnant despite some indications that the labor market is improving. Even though Yellen maintained that stronger wage growth is not a prerequisite for a rate hike, it\u2019s still clearly on everyone\u2019s mind. Plus, the Fed lowered the long-term unemployment target from 5.2% to 5.5% to 5% to 5.2%, as the current employment level has failed to spark inflation.<\/p>\n

Finally, U.S. retail sales have experienced their worst three-month decline since the first quarter of 2009 (when the economy was in recession). February saw a 0.6% drop, which followed similar declines of 0.8% in January and 0.9% in December. All told, sales are down 1.2% in the first quarter versus the fourth quarter of 2014. Those numbers should be a critical warning that all is not well with the economy right now.<\/p>\n

4. Global Problems Persist<\/strong><\/p>\n

Though U.S. economic data appears to be deteriorating, the United States is actually better off than many other countries. Easy money policies are full-go in Europe and Japan, where economic performance has fallen short of expectations recently. China\u2019s economic growth has slowed from about 14% to about 7% in the last seven years. And the Organization for Economic Co-operation and Development recently slashed its economic outlook for Canada for 2015 and 2016.<\/p>\n

Overall, the International Monetary Fund revised its 2015 to 2016 global growth outlook downward in the latest World Economic Outlook<\/em>. The updated growth number is 0.3% lower than in October 2014, even accounting for the boost provided by low oil prices.<\/p>\n

5. The Fed Follows Ray Dalio?<\/strong><\/p>\n

Ray Dalio, the Founder of Bridgewater Associates, believes that the Fed could spark a market collapse similar to 1937 if it raises rates too quickly. In a note to clients, Dalio said that today\u2019s environment shares many similarities with the period leading up to 1937, when interest rates had reached zero, the market had rallied on the back of monetary policy, and the U.S. economy was improving from the depths of the Depression. As the Fed began tightening in 1937, it touched off a rout that eventually saw the market drop more than 50%. Obviously, Yellen and her colleagues want to avoid a similar policy mistake. Will they end up following Ray Dalio\u2019s advice to be \u201cmore delicate than normal\u201d?<\/p>\n

Good investing,<\/p>\n

Chris Worthington<\/p>\n

The post Weak Economic Data Keeps Rate Hike at Bay<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Chris Worthington, Editor-in-Chief of Income They say a picture is worth a thousand words\u2026 but could a single word be worth nearly half a trillion dollars? Based on last Wednesday\u2019s Fed release, it appears that it can\u2026 You see, investors were anxiously waiting to see if the Fed would remove the word […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-69945","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69945","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=69945"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69945\/revisions"}],"predecessor-version":[{"id":69957,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/69945\/revisions\/69957"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=69945"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=69945"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=69945"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}