Tags: Faber | Fed | economy | rates

Marc Faber: 'Fed Won't Increase Interest Rates This Year'

By    |   Thursday, 19 March 2015 06:00 AM

While debate rages as to whether the Federal Reserve will raise interest rates in June, July or September, Marc Faber, publisher of the Gloom, Boom & Doom Report, thinks it will be none of the above.
 
"In my view, the Fed will not increase interest rates this year," he tells CNBC. The dollar's surge to multi-year highs against a range of currencies in recent weeks and recent disappointing economic data will keep the Fed from moving, Faber explains.
 
"The economy simply is not taking off, so I don't see there will be an interest rate increase." Retail sales have dropped three months in a row, including 0.6 percent in February. Many analysts expect economic growth to slow this quarter from the fourth quarter's 2.2 percent pace.
 
"The policies of central banks have grossly distorted financial markets and misallocated capital, in my opinion."
 
Faber says that unless the Fed increases the Fed funds rate to 3 percent "it's quite meaningless."
 
"The Fed and other central banks would have to increase interest rates quite substantially to really knockoff stock markets."
 
A strong dollar could keep the Fed on hold because it's deflationary for the economy, making imports less expensive in dollar terms.
 
The central bank has kept its federal funds target rate at a record low of zero to 0.25 percent since December 2008.
 
Fortune Senior Editor Stephen Gandel agrees at least partially with Faber, offering several reasons why the Fed "is not going to raise rates anytime soon (or at least not as soon as June, or even this summer)."
  • "The job market is weaker than it looks." he writes. The unemployment rate slipped to an almost-seven-year low of 5.5 percent in February. And non-farm payrolls rose 295,000, representing the 12th straight month with a gain of at least 200,000. That's the longest such streak since 1995. But average hourly wages rose only 2 percent in the 12 months through February. And the labor participation rate totaled only 62.8 percent last month, barely above the 37-year low 62.7 percent.
  • "A strong dollar will slow exports." The greenback has risen to multi-year highs against a range of currencies in recent weeks. An ascendant dollar hurts U.S. exports by making them more expensive in foreign currency terms. It also hurts U.S. corporate earnings, both by dampening exports and by lessening the value of companies' foreign revenue when translated into dollars.

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While debate rages as to whether the Federal Reserve will raise interest rates in June, July or September, Marc Faber, publisher of the Gloom, Boom & Doom Report, thinks it will be none of the above.
Faber, Fed, economy, rates
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2015-00-19
Thursday, 19 March 2015 06:00 AM
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