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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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Economy

STUDY: Number of Billionaires Doubles in Last Decade

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Number of Billionaires Doubles in Last Decade
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The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.

Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.

Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.

“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.

“Women and girls are among those who benefit least from today’s economic system,” he added.

There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.

“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.

“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.

To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”

Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.

“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.

Source: New York Post
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(c) 2020 2019 Vanguard Media Limited, Nigeria Provided by SyndiGate Media Inc. (Syndigate.info).

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Automobiles

Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear

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By Jeff Ostrowski, The Palm Beach Post, Fla.

Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.

Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.

The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.

News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.

The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.

“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”

Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.

“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”

The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.

Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.

There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.

While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.

Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.

At the same time, Kloza added, “This president has proven to be unpredictable.”

Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”

However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.

“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”

##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.

“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.

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Economy

Stocks Rally Despite Impeachment News

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Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.

The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13

The S&P 500 recovered 4.93 points to 3,196.07

The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.

The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.

Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.

Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.

On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.

Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.

The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.

Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.

Oil prices gained seven cents to $61.00 U.S. a barrel.

Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.

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