The Fed has been telegraphing a September rate hike for quite some time now, and they followed though with another 0.25 increase today. They also anticipate a December rate hike still this year as well.
I mentioned last time, this increase marks the end of the “free” rate increases that really didn’t do much to affect the economy as the rates were laughably low so much so that getting any commercially available rate meant a lot of “padding” in the rate from the Fed rates. This rate increase pretty much ends that.
From here on out, ever quarter percent increase goes right into the economy as an increasing headwind. Between political uncertainty, a burgeoning trade war, and an economic expansion getting long in the tooth, it’s my opinion that the Federal Reserve is acting recklessly here pushing ahead with its rate increase timeline without any evidence of inflation, and no evidence of wage growth. In other words, the Fed is raising rates despite there being almost no inflation.
Traditionally, this does not work out for the American economy. Every time the Fed starts raising rate for reasons OTHER than fighting inflation, the result is a recession, often a big one. There is no reason to believe this time will be any different. If the Fed follows through with a December rate hike, things will start to wobble. Another one in the first quarter next year is probably pushing the donkey cart off the ledge. Unfortunately, we’re all still attached to the cart.
Someday, we’ll get around the “my Dad is stronger than your Dad,” version of being an inflation hawk and go back to managing for full employment with a 2 percent inflation target (meaning that’s were we want inflation to be) rather than forgetting all about employment and looking at any increase in inflation, no matter how small, or how far away from 2 percent, as a command to act.
Time to play defense, financially speaking.