Tags: Bove | dollar | Fed | rates

Bove: Strong Dollar Will Keep Fed From Raising Interest Rates in September

By    |   Wednesday, 22 April 2015 08:00 AM

The economy's recent spate of weakness has led many experts to push back their forecast for an interest-rate increase by the Federal Reserve to September.

But that's not going far enough, says bank analyst Dick Bove of Rafferty Securities.

"Expectations that the Fed will raise rates in September or even June are off the mark," he tells Yahoo. "The dollar is simply too strong. It's having a significant impact on the earnings of international companies across the board and it's having an impact on the trade balance."

The Dollar Index, which measures the greenback against six major currencies, hit a 12-year high last month. A strong dollar hurts our exports by making them more expensive in foreign currency terms and makes U.S. corporate revenue earned overseas worth less in dollars.

An early rate hike would lead to a downward spiral, Bove says. "The trade balance would grow more negative, international companies would lose money overseas, jobs would be lost in the U.S. and the growth of the economy in the U.S. would slow down."

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

Brian Pretti, managing editor of ContraryInvestor.com, says the Fed faces a major dilemma: it must raise rates soon so that it can cut them again the next time we face a recession, but the economy isn't strong enough to justify a quick rate hike.

GDP grew 2.2 percent in the fourth quarter, and the Atlanta Fed forecasting index puts first-quarter growth at just 0.1 percent.

"At some point, maybe sooner than later, the US economy will re-enter recession. Historically, that's the time when the Fed would lower interest rates in attempt to spur economic growth. But today, interest rates are already at zero," Pretti writes on Peak Prosperity.

"This is clearly a situation the Fed wants to avoid, so raising rates soon is an urgent priority." But can the Fed (and other central banks) really raise rates now without killing the already-moribund global economy?"

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The economy's recent spate of weakness has led many experts to push back their forecast for an interest-rate increase by the Federal Reserve to September.
Bove, dollar, Fed, rates
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2015-00-22
Wednesday, 22 April 2015 08:00 AM
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