Tags: Insana | Fed | rate | hikes

Ron Insana: Fed Would Do Well to Remain 'Patient' on Hiking Rates

By    |   Wednesday, 18 March 2015 07:20 AM

Financial markets are full of speculation that the Federal Reserve will remove the word "patient" from its policy statement Wednesday when describing its stance toward raising interest rates.
 
Many Fed watchers say that would open the door for the central bank to raise rates in June. But CNBC commentator Ron Insana recommends that the Fed maintain its caution.
 
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.
 
"[Some] key metrics of economic stability do not yet warrant a rate hike," Insana writes in a commentary for CNBC.
 
Inflation still remains far from the Fed's 2 percent target, he notes. The Fed's favored inflation gauge rose only 0.2 percent in the year through January.
 
And, "the dollar, which has rallied 20 percent since last June, is doing the Fed's tightening work for it," he argues. "A 20-percent rally in the dollar has the growth-dampening effect of a full percentage point increase in interest rates."
 
Bottom line: "the economy is not normal, hence policy should not yet be normalized," Insana says.
 
"Until the economy is firing on all cylinders, inflation is moving back toward target and everyone experiences the benefits of improvements in the economy, the Fed can easily afford to remain patient, but it appears too many people lack patience with the Fed and would rather see rates start moving up than the economy complete its recovery."
 
Some analysts expect economic growth to slow this quarter from 2.2 percent last quarter.
 
Fortune Senior Editor Stephen Gandel agrees with Insana. He offers 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.
Related Stories:

© 2020 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
StreetTalk
Financial markets are full of speculation that the Federal Reserve will remove the word "patient" from its policy statement Wednesday when describing its stance toward raising interest rates.
Insana, Fed, rate, hikes
425
2015-20-18
Wednesday, 18 March 2015 07:20 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved