Tags: Ron Insana | Fed | Rates | Hike

Ron Insana: Rate Hike Now Would Only 'Simply Exacerbate' Global Troubles

Ron Insana: Rate Hike Now Would Only 'Simply Exacerbate' Global Troubles
Ron Insana (roninsana.com)

By    |   Wednesday, 16 September 2015 08:28 AM

Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street, predicts that the central bank won’t raise interest rates this week because of a troubling mix of global and domestic economic woes.

“While the Fed may raise rates in October or December, the world has given the Fed ample reason to hold off a little longer,” he wrote in a blog for CNBC.com. “I don't believe the Fed will raise rates this week — let's call it a pregnant pause in their anticipated due date,” he said.

“Turbulence in global markets, rapidly decelerating growth in China, the world's second largest economy, currency chaos in a quite a number of emerging market nations, all lead to a risk that a rate hike would simply exacerbate those recent, and troubling, trends,” he said.

“While it's true, the rest of the world does not figure into the Fed's dual mandate of maximizing domestic employment while keeping prices stable, those concerns become issues when they affect the outlook for both global, and domestic, economic growth,” he said.

“When taken alone, even domestic considerations give the Fed reason to pause. It is true that the jobs market is causing some labor pains for the Fed, as the unemployment rate hovers at multi-year lows, job openings are nearing six million, and there are some concerns that wage pressures are beginning to gestate — though that remains to be seen,” he said.

“More important is that the Fed's inflation target of two percent has not yet been achieved. Despite claiming that low inflation is "transitory," by all measures, the target has been missed for nearly six years. Even after deflation ceased to be a troubling toddler, there has been no further development on the inflation front, and none appears likely anytime soon,” he said.

Insana said signals from the bond market and fed-funds futures indicate a rate hike most likely in December.

Analysts said an interest rate hike — the first since 2006 — would remove the uncertainty that has dogged the market for several weeks.

"The debate around the Fed continues but the Fed will do more damage waiting for December to raise rather than start the normalization process," Art Hogan, chief market strategist at Wunderlich Securities, told Reuters. "If they don't raise rates this week, it's a bad signal."

U.S. interest rates futures implied traders placed a 27 percent chance the Fed would end its near-zero interest rate policy on Thursday FFU5, up from 23 percent late on Monday, according to CME Group's FedWatch program.

Andrew Levin, who served as a special adviser to former Fed Chairman Ben Bernanke and then-Vice Chair Janet Yellen from 2010 to 2012, told Bloomberg News that it would be a big mistake for the Fed to raise interest rates this week and said the central bank should hold policy steady until well into 2016.

Levin, who is now a professor at Dartmouth College in Hanover, New Hampshire, contends that the U.S. is probably about two years away from achieving full employment, no matter what the jobless rate suggests and Federal Reserve officials think.

At 5.1 percent, joblessness is in line with the level that most Fed policy makers reckoned in June was the equivalent of full employment. (They'll be releasing updated estimates Thursday after a two-day meeting).  That suggests that wage increases will start to accelerate—and inflation begin to rise—as employers find it increasingly difficult to hire the workers they want without paying them higher salaries.

"The true unemployment rate—including hidden unemployment and underemployment—stands at around 7.25 percent,'' Levin wrote in his blog on Sept. 9, adding his estimate of slack to the 5.1 percent jobless rate in August. "Initiating monetary tightening at this juncture would be a serious policy error."

(Newsmax wires contributed to this story).

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Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street, predicts that the central bank won't raise interest rates this week because of a troubling mix of global and domestic economic woes.
Ron Insana, Fed, Rates, Hike
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2015-28-16
Wednesday, 16 September 2015 08:28 AM
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