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Will the Improving Economy Cause the Fed to Raise Interest Rates?

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Will the Improving Economy Cause the Fed to Raise Interest Rates?

The policymakers at the Federal Reserve will be meeting next month, and it is then we will find out if they will decide to raise interest rates.

Some policy makers, along with other economic experts, believe that a rate hike is imminent, considering the currently improving economy and market performance.

Below, we’ve included the Fed Funds Rate Since 1990. You can see the Fed rate plummet in 2008 and it’s been there since…

fed funds rates

April’s Minutes

The Federal Open Market Committee (hereafter referred to as FOMC) met last month to analyze data and determine if a rate hike was due.

After all the analysis of all the information, it was found that if conditions continue to improve on all fronts, a rate increase would be likely.

It is not a foregone conclusion that growth will occur, as some differ in opinion about meeting certain conditions within a particular time frame. Further data analysis will be needed, as well as a close watch on market performance up until the meeting takes place.

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Market Swings After Minutes Release

Once word got out that one can expect a June rate increase, even though they did not make a final decision, some stocks, along with 10-year Treasury bonds, went down with an expectation of a rate hike.

Although the first quarter was nothing exclusive, data shows that a much better second quarter is on the way.

These indicators of a second quarter upswing are to an extent what has policy makers considering an interest rate increase next month.

A chart was released, based on federal futures prices, and it relates to the percentage indicating the likelihood of a rate increase. Here are a few of the upcoming meetings and portions, the differences being between the few hours before the meeting minutes release and shortly after the publication.

  • The chance of increase stood at about 15% before minutes release for June 2016.
  • The chances doubled to 30% after the publishing of the minutes.
  • The pre-release percentages are at least 10% lower than the expected percentage chance of increase post-release for each month indicated

The more the markets improve, the more likely a rate increase will occur in June.

 

Other Data Factored In

Other numbers were crunched to help Fed policy makers determine if price increases were due to help balance things out.

The other data comes from:

  • Rising CPI (Consumer Price Index)
  • Growth in housing numbers
  • Growth in consumer spending numbers
  • GDP (Gross Domestic Product) is trending upward towards a positive growth
  • England’s potential exit from the E.U.
  • China’s economy

 

Too Soon?

April’s Fed meeting ended up with quite a few participants concerned that a June rate hike would be too soon.

December of 2015 was the last time the Fed raised rates, and many experts believe that the markets do not fear the possibility of a rate increase.

Other experts say the outlook is not complete, and it is too early to determine if a rate hike is necessary. The FOMC looks at the Global performance along with the volatility of the markets over the last few months.

April saw the termination of analysis which was also called balance-of-risks statement.

In the March statement, global uncertainty was reported as a significant risk, but the April report did not include the risk.

What all of this means is that the FOMC’s assessment of risks for April was less than it was in March, which is why global data did not get a warning about the data for the April report.

But with so many international economies shifting to negative interest rates, there could be complications in raising rates.

What Investors Believe

Many investors in stocks, commodities, and bonds believe that the Fed is foretelling a rate increase, rather than warning of the possibility.

A huge selling took place right after April’s meeting minutes were released.

Although a rate hike is likely, it is still not definite, but investors are apparently not taking any chance, selling now instead of in June.

 

Money Manager Disagreements

Many money managers say that is way too soon for the Fed to consider, much less show possible intent to move forward with, a rate hike in June. Part of this concern is that the referendum regarding the U.K.’s possible E.U. exit will not take place until a week after the Fed’s meeting.

The money managers believe that the decision by the U.K. will have a direct impact on the markets, and the data the Fed is looking at is not complete and detailed enough to make a proper decision so early.

 

Conclusion

As with any situation, there are two sides of experts. One side says that a rate increase would spell nothing but trouble if it were to happen as soon as June.

The other says that as long as the markets continue to show an upward trend, a rate hike would likely be necessary.

Until the meeting happens, it is hard to know what to expect.

However, given the Fed’s language and actions in April’s meeting, many experts are looking at it as a sign that the increase will happen, although June’s meeting is still on the horizon.

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Dems Can Only Blame Pelosi For Failure To Secure More Stimulus Money

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Dems Can Only Blame Pelosi For Failure To Secure More Stimulus Money

The next round of stimulus money will unlikely include any major concessions for Democrats. With this, the party has nobody to blame but Nancy Pelosi.

Astonishingly, that opinion comes from David Dayen, the executive editor of The American Prospect. The said magazine stays “dedicated to liberalism and progressivism.”

In a recent article titled “A Leader Without Leading,” Dayen says during the passage of the last stimulus bill in late April, Pelosi – along with Sen. Chuck Shumer – chose to forego adding their wishlist to the bill, believing they would have another shot. That shot, thus far, has never materialized.

“Republicans wanted more money for forgivable loans for small businesses. Democrats had a host of liberal priorities left out of prior legislation that could have been paired with the extension. But Pelosi and her Senate colleague Chuck Schumer chose to go along with the Republican framework, leaving everything else for later.”

“Immediately afterward, Senate Majority Leader Mitch McConnell hit the pause button on future legislation. It felt like the Democrats were played.” said Dayen.

Credits for the Republicans

He also credits the Republicans for knowing exactly what they wanted out of each stimulus bill. The Republicans did so all while Pelosi fumbled away every opportunity.

“When the coronavirus spread and lockdowns buckled the economy, Republicans knew exactly what they wanted—protect large corporations and investors—and pursued it unerringly. Pelosi had no coherent agenda to fall back on. She’d spent the past year advancing complex, multifaceted bills and watching them wither in Mitch McConnell’s legislative graveyard.”

Dayen adds, “H.R. 1, the House’s signature legislation during this Congress, which attempted to nationalize voter registration, establish nonpartisan redistricting commissions, add ethics standards to the Supreme Court, add a voluntary public-financing option for campaigns, require presidents to release tax returns, disclose donors for super PACs, make Election Day a holiday, and about 20 other things in a single bill, is a perfect example of this syndrome. There’s no single narrative to grab onto, just a mélange of advocacy group–approved planks. This left House leadership unprepared as the pandemic began its march.”

Pelosi worked on the earlier stimulus bills. While doing so, she allowed the Republicans, led by Mitch McConnell, to craft the CARES Act. Dayen says this meant that Democrats “just got to tweak McConnell’s work, without altering its tilt toward the powerful.”

Pelosi and the HEROES Act

Dayen’s takedown on Pelosi ends with her “pie-in-the-sky” HEROES Act. Somehow, she even managed to make a mess of her own bill.

“Incredibly in the midst of a crisis, was a Pelosi tendency that had grown over the years: obsessive concern with deficits. Pelosi rolled back student debt relief in the HEROES Act after learning that it would cost $100 billion more than expected. This was a $3.2 trillion messaging bill not designed to become law, yet an additional 3 percent cost was considered unacceptable. Pelosi also declined to add “automatic stabilizers” that would maintain expanded benefits until economic stress dissipated, blaming a Congressional Budget Office scoring quirk that made the cost appear artificially larger.”

“So with over 30 million out of work, the important thing to Pelosi was that her pie-in-the-sky, going-nowhere bill was ‘reasonable,’ based on some ineffable standard of reason…”

“Devotion to deficit hawkery in normal times is unwise policy. It’s downright fatal during an economic crisis, where relief could be yanked away from needy families prematurely simply because of an unwillingness to challenge CBO’s scoring model.”

Many expect lawmakers to vote on the next stimulus bill sometime after July 20. If you hear Democrats complaining about how “unfair” the bill is, just remember who is negotiating for their side.

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Why You Should Consider Filing For Social Security At Age 62

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Why You Should Consider Filing For Social Security At Age 62

Earlier this week we discussed four common regrets that retirees have when they look back at their golden years. One of the most common regrets was filing for Social Security benefits at 62, the earliest possible age. According to the Social Security Administration, about 1 out of 3 people apply for benefits at that age.

The regret is that if they had waited longer to file for their benefits, their monthly check would be much larger. For example, by delaying filing for Social Security until age 70, your monthly benefits can be as much as 75% larger than someone who filed at age 62. That’s because benefits grow by a guaranteed 5% to 8% each year that you delay your claim.

But there are always two sides to a coin. Today we wanted to discuss the benefits of filing for Social Security as soon as possible. With this, you can decide which approach you believe will benefit you the most.

The Case For Filing Social Security Early

The earliest you can file for Social Security benefits is age 62, but each month you file before reaching your full retirement age (FRA) cuts your monthly benefit amount. As an example, if your full retirement age is 67 and you start your claim at age 62, your monthly check will be reduced by approximately 30%.

Despite the reduced monthly benefit that comes with filing early, tens of millions of Americans make that decision every year. And it boils down to one line:

We have no idea what the future holds.

The financial benefits of waiting until age 70 to claim Social Security make complete sense. But we don’t know how long we will live, so we don’t know if the trade-off is worth it. If we knew we would live a long, healthy life until age 100, we would all delay filing until age 70 and reap the maximum reward.

But if you decided to wait until age 70 to claim, and unfortunately passed away before that, you would have foregone all the retirement income from age 62 on.

Waiting to file is a gamble, but so is giving up guaranteed monthly income starting at age 62.

Deciding when to claim your benefits requires serious thought and shouldn’t be a hastily made decision. And we aren’t saying that filing Social Security immediately at 62 or waiting until age 70 is the right choice. Every situation is different. If you are still healthy and working, waiting a few years passed 62 to claim but not all the way to 70 might be a good compromise. You’ll get a larger check than had you claimed right away, and your regular working income can make up for some of the reduced benefit amount since you didn’t wait until age 70.

The most important thing, whether you file at 62 or 70, is to find enjoyment in your golden years.

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Mnuchin: Next Stimulus Coming By End of Month, No More Extra Unemployment Money

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Mnuchin: Next Stimulus Coming By End of Month, No More Extra Unemployment Money

Treasury Secretary Steve Mnuchin said the next stimulus bill will be much more targeted than previous bills. He also said the goal is to get the next bill approved between July 20 and the end of this month. That time is when Congress will return from their holiday break and before they leave for August recess.

On Broad Stimulus Measures

It appears the White House will not support the type of broad stimulus measures of the previous bills. Instead, it will focus on direct payments to Americans. In an interview with CNBC yesterday, Mnuchin said “we do support another round” of stimulus checks to individuals. This mirrors the $1,200 payments that the government sent out as part of the $2 trillion rescue legislation passed in March.

Mnuchin didn’t mention whether he supported the idea of a $40,000 income cap to receive a check that has been floated by GOP lawmakers. The income cap for the first stimulus check was $75,000. He did say that he spoke with Senate Majority Leader Mitch McConnell. He also mentioned the “level and criteria” for checks would be discussed when lawmakers return to Washington.

Any new stimulus bill would likely not include proposals from the Democrats that include hazard pay for essential workers. It likely won’t include a longer extension of strengthened unemployment benefits, mortgage and rent relief, and support for state and local governments, too.

Mnuchin reiterated that the White House isn’t in favor of more relief money for states and municipalities to make up for lost revenue. Some state and local governments are considering trimming essential services as costs balloon and revenues drop. He said the administration does not want to “bail out” states that were “mismanaged” before the virus hit.

On Unemployment Benefits

Another critical topic the lawmakers will tackle the end of the enhanced unemployment benefits on July 30. They will do so when they return to Washington D.C.

Mnuchin said the White House has no interest in extending the enhanced benefits any further. Instead, he said it wants to change how they pay benefits. He did not give details. However, he did hint that unemployed workers shouldn’t be able to earn more money compared to full-time employees

“You can assume that it will be no more than 100%” of a worker’s usual pay, Mnuchin said. This echoes many Republicans who argue the additional benefits are preventing some from returning to work. These workers do this so that they make more at home than they would at their jobs.

While Mnuchin says the White House isn’t in favor of extending unemployment benefits, it is extending the Paycheck Protection Program that provides loans for small businesses. Earlier this week the Trump administration released a list of companies that received loans from the government. With that, backlash ensued as numerous businesses tied to wealthy individuals were found to have requested funds. Of the $130 billion remaining in the program, Mnuchin said he wants new relief to be “much, much more targeted” than past rounds of funding.

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