Tags: John Crudele | New York Post | Federal Reserve | Janet Yellen

NY Post's John Crudele: Fed Should Hike Rates Next Week

NY Post's John Crudele: Fed Should Hike Rates Next Week
Janet Yellen, chair of the Federal Reserve (AP)

By    |   Tuesday, 06 June 2017 11:35 AM

The Federal Reserve should raise interest rates at its policy meeting next week even though last month’s jobs report was weaker than forecast, says John Crudele, a financial columnist at the New York Post.

“The job figures probably aren’t going to look any better this summer. And so there will probably be less opportunity to raise rates over the next six months,” he said in a June 6 column. “The Fed’s extremely low rate policy is hurting millions of savers in the U.S. and creating a bubble in the stock market that is drawing in more and more people who shouldn’t risk their wealth in equities.”

During the 2008 financial crisis that led to the bankruptcy of Lehman Brothers, the Fed lowered interest rates to record lows near zero percent. When that policy wasn’t enough to drive growth, the central bank started spending trillions of dollars on U.S. Treasury and mortgage debt as a way of suppressing borrowing costs. Interest rates fall as bond prices rise.

The Fed has sought to “normalize” monetary policy by raising rates over the past year and a half on signs that inflation was rising and the labor market was improving. Last month’s jobs report was disappointing, though.

“Last Friday, the Labor Department announced a modest increase of 138,000 jobs in the US during May. That was far below the 185,000 that experts were expecting,” Crudele says. “Even worse, the government revised downward the surprisingly strong job gains in April to an ordinary amount of just 174,000. And March’s gains were lowered to a pathetic 50,000. Take the last three months together and the average gain was just 121,000 jobs.”

The government’s jobs numbers are skewed by its “birth/death” model that is intended to compensate for hiring by startup businesses and firings by companies that are closing.

“Friday’s figure of 138,000 included a very generous guess that 230,000 jobs were created by small, newly born companies that Labor can’t — for reasons unknown — capture in its surveys,” Crudele says. “Bottom line: The Fed will be considering an interest rate hike at a time when misleading statistics are making the weak employment situation look a lot better than it really is.”

Investors forecast that the Fed will raise rates next week, then hold still until the end of 2018. The central bank may tighten the money supply in other ways, such as by letting its bond portfolio decline as those notes reach maturity.

Fed Chair Janet Yellen’s comments about monetary policy will be closely scrutinized for a sense of direction.

“If the Fed doesn’t raise rates soon, then it won’t be able to cut them when the economy really weakens and folks turn to Yellen — or her replacement — to ride to the rescue,” Crudele says.

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The Federal Reserve should raise interest rates at its policy meeting next week even though last month's jobs report was weaker than forecast, says John Crudele, a financial columnist at the New York Post.
John Crudele, New York Post, Federal Reserve, Janet Yellen
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2017-35-06
Tuesday, 06 June 2017 11:35 AM
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