Tom Hutchinson, senior editor of the Newsmax newsletter "The High Income Factor" and member of the Newsmax Financial Braintrust (FBT), told Newsmax TV
he's skeptical that the Federal Reserve will be strong enough to raise interest rates as much as necessary.
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Economists' consensus is that the central bank will begin raising rates around mid-year and move gradually.
"It’s a huge problem," Hutchinson told the "America's Forum" show on Newsmax TV. "The Fed has injected itself in the economy like never before in history. Since the recession, they’ve pumped more than $4 trillion into the banking system" in addition to the low rates.
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"What’s being debated now is raising the rate from near-zero, priced for a depression scenario, and they’re having trouble doing even that," Hutchinson said. The Fed has pledged a "patient" path to raising rates.
"The thing to realize is it’s much easier [for the Fed] to get involved in the economy than it is to pull out," he said. "At some point, to protect from inflation they’ll need to reverse policies and move interest rates higher. I don’t think they’ll have the will to do it to the extent it needs to be done."
Inflation could turn into a problem at some point, Hutchinson said. "Not only has the Fed, but central banks around the world have lowered rates near zero and essentially disarmed themselves against fighting inflation," he said.
"So when inflation does take hold it can only be countered by the will power of the central banks to spoil the party and slow down the economy by raising rates. I don’t think they’ll be able to do it."
Meanwhile, he isn't too impressed with the jobs market. "If you compare the employment situation to other recoveries, it stinks. You have more long-term unemployed than ever before," he said.
"The labor participation rate is as low as it’s been since the 1970s, when you didn’t have women in the work force in mass." The participation rate totaled 62.9 percent in January, barely above the 37-year low of 62.7 percent.
"The wage growth is not there and the jobs that have been added during this recovery have been lower paying than the ones lost," Hutchinson said. Average hourly wages rose only 1.7 percent last year.
Still, recent gains in employment are the best of the 5 1/2-year recovery, he noted. "The last three months have added more jobs than for any three-month period since 1997, and 2014 was the best year for job growth since 1999," Hutchinson explained.
"So although the employment situation in this recovery is sub-par, it’s gaining steam."
About Tom Hutchinson
Tom Hutchinson is a member of the Newsmax Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.
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