economy

June Jobs and Mid-Year Economy Review

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Monitoring the economy is tricky business. The monthly reports that we get from the government require gathering reams of data over hundreds of hours, and all manner of processing to get us a simple sounding number like, “The U.S. economy added 287,000 new jobs.” Even then, those numbers are routinely readjusted up or down later as more data comes in. The May employment numbers were enough to stop a Fed rate hike in its tracks. Are the new June numbers good enough to put an interest rate increase back on track? June Employment and the Fed Employment numbers are very important to the Fed. A tightening labor market often is visible before any actual signs of inflation. The theory is that lower unemployment forces businesses to offer higher wages in order to attract and retain workers, which will eventually lead them to raise prices in order to cover higher costs. So, if employment jumps too fast, too far, it might be time to take a look at a rate hike. The increasing transparency and ability to buy goods online has shaken this up a bit, however. Just because Macy’s raises prices on something doesn’t mean that you have to pay …

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What Does Brexit Mean for America?

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Gah! Brexit! Run for the hills! Wait. Wait. If you live in England, this might be kind of a big deal. I’m not 100% sure. However, if you live in America, it’s time to calm down. How Does Brexit Affect America? I’m on vacation, so I’m going to keep this brief, but I know a lot of people are worried about the vote on the Brexit, and what that might mean for the economy and the stock market, and so on. Let’s start at the beginning. The markets hate instability. They hate not knowing what is going to happen. The POTENTIAL exit of England from the European Union is both unstable, and something that no one really knows what will happen. After all, Britain, if it actually goes through with it, will be the first country to ever leave the European Union, or EU. That is why you got a super plunge in the American stock market on Friday. What happens next with the Brexit? Well, no one is actually sure. That’s what unprecedented means. However, there are some things we do know. England, while politically and strategically, very important to America, is actually very small from an economic point …

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June Fed Meeting – To Raise or Not To Raise

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dollar coins inflation

This article is from 2016. The Federal Reserve is doing its best to alert investors (and others) that it plans to raise interest rates in June (2016). You know, unless something happens in China again, or whatever. Once upon a time, the Fed kept its thinking about interest rates to itself. These days, Federal Reserve Board members talk to anyone who will listen about how they are currently leaning toward whether or not to raise interest rates. While there is still virtually no inflation anywhere in the economy, the Fed got an excuse to raise rates from the April inflation numbers which showed a fairly high 0.4 percent seasonally adjust increase. Of course, every economist and analyst within a thousand miles quickly noted that virtually all of that increase came from fuel prices finally bouncing off of rock bottom, and not from any real inflation. Read about getting your real credit score for free. Still, the Fed seems intent on raising interest rates for some reason, most likely in order to keep from being considered too dovish, since we are still throwing that word around like an insult. Should The Fed Raise Interest Rates in June? The Federal Reserve has …

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Inflation Rises… Sort of…

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Today’s version of Let’s Overreact to Economic Statistics comes in the form of news articles noting the “biggest rise in inflation in three years!” The April inflation number, released today, serves up a 0.4% seasonally adjusted increase. This is the biggest inflation number since February 2013. So, does that mean the Fed will race to raise interest rates? Inflation and The Fed Believe it, or not, not all inflation is bad. In fact, some inflation is necessary for a healthy economy. The current Fed repeatedly has stated that it targets inflation at an annual rate of 2.0%. Even with the 0.4 percent increase for April, the 12 month inflation rate is just 1.1 percent. So, inflation isn’t exactly roaring ahead, and the Fed is unlikely to make a snap move in reaction. However, what doesn’t really get enough attention is that the 2.0% target number isn’t really a “close enough” sort of target for most economists and people at the Fed. A number of 2.1% is likely to make people nervous. That’s because while a 2 percent annual inflation is a sign of a healthy economy, anything approaching a 3 percent annual inflation triggers worries about an overheating economy, and …

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Fed Leaves Interest Rates Alone for April

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looking for future fed rate hikes

The Federal Reserve announced that it would not raise interest rates in April. This was not a surprise to anyone. That keeps interest rates at a range of 0.25% to 0.5% which is where it was set last December during the first interest rate increase in years. The Fed statement that accompanied the announcement did not provide any leaning for the upcoming June meeting. The modern Fed likes to telegraph its moves whenever possible, so it is a reasonable assumption, that either a) The Fed is right on the border about an increase in rates for its June meeting, b) The Fed is not planning on raising rates for the June meeting, but wants a neutral tone, so that if it wants to raise rates the next time around, a small change in the wording would telegraph that possibility. Chances are better for B than A barring any big economic news or stock market moves. The Fed did change the way it talked about the global economy, which is basically a way of saying that they aren’t still worried about China ruining everything like some people were at the beginning of the year. The final piece of the puzzle is that …

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Are Oil Loans the New Subprime Mortgages

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oil drilling rig

Remember when banks got too greedy with subprime mortgages? Remember when banks (and their executives) just couldn’t say no to the massive earnings (and by extension massive bonuses) that came from building bigger and riskier portfolios of subprime loans? Well, get ready for oil loans. Oil Loans and Bank Risk If you think Wall Street and the big banks learned their lesson from the subprime loan driven banking crisis, you really don’t understand how compensation works in the financial industry. You see, bonuses are paid based on big gains. This encourages risk taking. However, there is no downside for being wrong on those big risks, not even losing some of the bonus you earned earlier in the year. As a result, risk is the name of the game at Wall Street’s big banks. This time, banks rushed to lend money to companies in the oil industry when prices where high. In addition, they extended very generous lines of credit to those same companies on pretty sweet terms. Just like with the subprime mortgage crisis, as long as oil prices didn’t fall too far, too fast, everything would be fine. Deja vu. With oil prices at low levels, and any oil …

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Fed Stands Pat and Lowers Expectations

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Since before the rate hike in December, Fed Chairman Janet Yellen has repeatedly said that all interest rate hikes were going to be dependent upon the data. In other words, while the Fed was willing, and ready to raise interest rates, they were not going to just keep raising them to meet expectations. The announcement today that the Fed will not be raising interest rates in March surprised no one. However, they also took the step of modifying their anticipated rate hike schedule, which originally anticipated four rate hikes this year, to a total interest rate of 1.25%. The new estimates now anticipate only two rate hikes during 2016. If that holds up, then the maximum Fed Funds Rate by year end would be just 0.75%. While commodities and oil ran higher on the news, that is likely to be short lived. The whole, lower interest rates equals weaker currency thing only works when there is a stronger currency out there to run to, and right now, there just isn’t. The Dollar might not be particularly strong right now, but nothing else is any stronger, so those trends are likely to reverse themselves over the next month or two. The …

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Interest Rate Confusion – Raise or Hold?

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I’ve been writing about interest rates much more than I wanted to lately because I often write about what people talk to me about, or what I hear all over the place, and interest rates seem to be holding people’s attention. I’d like to offer up some ideas about how to think about interest rates. If everyone started keeping these things in mind, maybe there wouldn’t be so much talk. Interest Rates are a Continuum One of the biggest problems people have wrapping their heads around the concept of the Federal Reserve raising interest rates is that it is not some sort of on or off type thing. Sure, each increase is a Yes or No to the question of whether or not the Fed will raise interest rates, but the resulting rates are not simply “high” or “low”. Consider the Fed’s interest rate increase in December. It raised interest rates from 0% to 0.25%. Yes, that is an increase. Yes, it is the first increase in some time. But, is there really much difference in the world because of it? Your credit card interest rate, or your adjustable mortgage interest rate may not have even changed because so many …

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Fed Telegraphs Slower Rate Hikes

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The Federal Reserve, via its members, is out announcing that the rate hikes everyone was sure were coming this year, after the December interest rate increase are, in fact, on hold, until the markets and the economy stop being so shaky. Fed Members Nudge Wall Street Off of Hike Forecasts The St. Louis Fed President, James Bullard, said in an interview that rate hikes during 2016 were never a sure thing. He is right that the Fed often, and deliberately, said that rate hikes were dependent upon data going forward, but the markets didn’t believe them, pricing in a full 1% interest rate hike over 2016, and every analyst under the sun talking about a steady march up in interest rates. Bullard blames the previous Fed under Fed Chairman Bernanke for “mechanically” raising interest rates 17 straight times from 2004 to 2006 (and likely triggering the nationwide real estate slump that ended up all but crashing the U.S. banking system in 2007). He says that because of that chain of increases, everyone simply assumed that this year would have similar, albeit slower, rate increases. Bullard leaves out that many of the other current Fed members (including himself) could say often enough …

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Fed Thoughts Economy and Interest Rates

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Every six months, the Chairman of the Federal Reserve Board testifies before Congress. For the most part, the interesting, fact-based, information comes out in the Chairman’s open statement to Congress. After that, as all things Congress do, the hearing dissolves into a politically motivated bit of staged theater in which various Congressmen “ask questions” that end up being a lot more political posturing than actual questions. Still, there is often a lot of information in that opening statement, which is helpfully posted on the Fed’s website, if you want to read the whole thing without seeing it through the lens of the media. (or on a former financial advisor’s personal finance blog 🙂 The U.S. Economy and Interest Rates The Fed raised interest rates for the first time in many years in December. Since then, the employment picture in the U.S. continues to improve with the unemployment rate dropping to 4.9 percent in January. The economy is growing as well, with the real gross domestic product estimated to have increased about 1.75 percent during 2015. If that was the whole picture, then the rest of this talk would have been about inflation and raising interest rates. But, of course, the …

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