4 Reasons the Fed Won’t Raise Rates

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Here in the U.S., we remain in a “Goldilocks” environment; the economy is neither too hot nor too cold.

federal reserve

Source: GrabPress

Federal Reserve Chair Janet Yellen, who some are calling the “Fairy Godmother of the bull market,” is living up to this nickname. Due to deflationary forces, slowing economic growth and a rapid deceleration in payroll job growth, I expect the Federal Reserve will maintain its 0% interest rate policy for all of 2015.

There is ample evidence of this. Following the disappointing March payroll report and other economic news, New York Fed Governor William Dudley issued a prediction that U.S. economic growth will slow to 1% in the first quarter and reach just 2.2% for the rest of 2015. Dudley noted that the economic recovery has been “disappointing compared to historical patterns.”

Interestingly, Dudley attributed the first-quarter slowdown to harsh winter weather, the stronger dollar and the negative impact of cheap oil on the vibrant U.S. energy industry. Dudley then went on say that the surge in the dollar could cause “another significant shock” to the economy by making U.S. exports more expensive.

Reading between the lines, Dudley provided three good excuses why the Fed will not be raising key interest rates anytime.

As further proof, the latest Federal Open Market Committee (FOMC) minutes reflected similar concerns. Specifically, declining energy prices and the appreciating dollar could weigh on inflation in the near term, and also curtail U.S. exports.

As such, several members “suggested that the economic outlook likely would not call for liftoff until 2016.” There are four conditions that are preventing the Fed from raising rates:

  1. The strong dollar
  2. Weak crude oil prices
  3. Decelerating employment growth
  4. Slowing economic growth

I should add that the Fed is not the only one who’s concerned that a strong U.S. dollar is hindering economic growth. In the Treasury Department’s semi-annual currency report to Congress, the Obama Administration was critical of Japan and the eurozone for utilizing excessive monetary policy to stimulate economic growth. This report stated:

“Not only has global growth failed to accelerate, but there is worry that the composition of global output is increasingly unbalanced.”

Now, at the last G20 meeting of finance ministers, which included Treasury Secretary Jacob Lew, the official statement strongly supported the eurozone’s and Japan’s aggressive “easy money” policies as a means to boost global economic growth. So, there’s a bit of irony in the Treasury Department’s latest statement, but the message still isn’t off the mark.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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