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The Fed Rate Hike Rollercoaster July 2016

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The Fed Rate Hike Rollercoaster


What will the Fed do second half of 2016?

 

The most recent FOMC meeting was held on June 14th and their notes were released on June 15th. As expected, the Fed Funds Rate was held at .25%. The announcement came on the heels of a weak jobs report at the released just the Friday prior. Since the Great Recession of 2008-2009, the employment situation has become one of the preeminent data points used, and acknowledged, by the Fed to support any change or remain in policy. Looking forward to the second half of 2016, with the Brexit vote to ‘leave,’ can’t we assume it will take something incredibly positive and stabilizing for the Fed to raise rates again this year? All aboard the second half Fed roller coaster!

 

Employment data may very well continue to improve and the June labor stats may end up as an anomaly. The July release on 7/8 revealed a gain of 287,000 jobs, which surpassed the large expectations. However, the June employment numbers may be enough to spook the Fed into leaving rates low through the end of the year. Fluctuations in this data cannot instill confidence for the Fed.

 

Moreover, the uncertainty surrounding the Brexit result initially rocked global markets and has clouded many important economic and trade issues, not only for Great Britain and the EU, but for the world. As the world’s leading economic engine, the United States and Fed will be hard pressed to enact any policy that may rumble a fragile global marketplace. The implications of this vote must certainly be considered by the Fed in policy decisions going forward. But is raising rates really a bad thing?

 

The FOMC raising rates is a clear signal, at least in the committee’s mind, that the economy is on solid footing and financial markets are stable and can handle an increase in the benchmark Fed Funds Rate. It would imply a stabilization of the labor market. However, since the global financial market crisis nearly a decade ago, market participants have gained the mindset that bad news is good news, and vice versa. Until this attitude shifts, the prospect of another rate hike could ultimately draw the ire of global market participants – buckle up for the Fed rate ride!

 

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