The Federal Reserve Should, Will Not Raise Interest Rates This Month.

We have had an extended period of time where the interest rates charged to the banks by the Federal Reserve for loans has been at or near zero%. Zero.The rate was 0.16% during December 2008. This August that rate was 0.40%. Friday a shiver was sent through the market at the mere mention of a possible rate hike. The reason why we have seen a drop in the interest rates were to act as a stimulant to the economy. If you want some background on this column all you have to do is read a previous column titled "Who is Manipulating the Economic Data for Hillary Clinton?" This column write articles based upon the unadjusted, non-seasonally adjusted, data. The media tends to report only the seasonally adjusted data. The factors change upon data set, period, season, and year. This column has detailed how using false seasonal factors lead to the creation of economic FACTs (False Assertions Considered to be True.) There are a number of reasons why the Federal Reserve should increase interest rates and many why they shouldn't. Sometimes they are the same side of the coin.

Jobs Data - Seasonally Adjusted FACTs. The Bureau of Labor and the President have been touting years of monthly consecutive job growth data in the Private Sector as a FACT. The Streak started at different times depending upon if you use the Non-farm data or the Private Sector data. What is clear is that the seasonal factors used to convert the non-seasonally adjusted (NSA) Current Employment Statistics (CES) worker data to promote "job" creation were cajoled to create a streak and maintain a streak. The June Jobs Report, released this past July, revealed that the SA CES streak ended during May of this year. The data for 2015 job creation was revised downward earlier this year. Had they not revised the data from 2014 the Jobs streak would have retroactively ended during January of 2015.

The jobs market should not impact the interest rates. The interest rates should not impact hiring. What has become evident over the past few years is that even with lower interest rates companies are more interested in cutting costs and buying back publicly traded stock than hiring people.  The problem is that the "Jobs Number" can move the stock market. A strong number does not necessarily move the stock market higher. A weak Jobs Report can move it substantially lower.

Housing Data - House of Cards - More FACTs. The housing market is doing better than it was doing better at the depths of the recession. That is similar to saying we have lower deficits now than we had during the depths of the recession. Last months new construction data revealed that we are starting and completing housing at rates similar to 1983 and 1992. The July New Home Sales data was not much better. July new home sales were slower than 1992. Surely existing home sales were a ray of hope.While average sales prices of existing homes have been rising the number of units sold have been languishing. July 2016 existing homes sold were fewer than July 2013.  Remember that we are nowhere near the record level of units sold during 2005 and 2006.

If the Fed raised interest rates we might sell more homes. This is counter-intuitive.I was a Realtor for 15 years. We often saw people decide to purchase homes to lock into low interest rates before they rose any further. If the interest rates were higher there would be a smaller group of potential buyers. We might see downward pressure on prices as fewer purchasers are available and as the cost of money increases. Here's the thing: We saw record levels of homes bought and sold during 2005 and 2006 while the Federal Funds rate was increasing from 3.5% to over 5%.  This means that if this was as healthy an economy as it was during 2005 and 2006 the market could absorb multiple interest rate hikes - 0.25% to 0.50% at a time. The key word is "if."

Inflation/Consumer Price Index. You will hear  a number of stories during the next few weeks and months regarding the Phillips Curve or the Misery Index. This column has produced a number of articles regarding the Misery Index and regarding consecutive months of deflation. The misery index is the combination of the inflation rate with the unemployment rate. This is psuedo math - you can only add percentages within the same group of data.The misery index says that when we have high inflation and high unemployment we are miserable. When we have low unemployment and low inflation were are "feeling great."

The Phillips Curve projects that when we have low levels of inflation we then to have high levels of unemployment, or that when we have high levels of unemployment we have low levels of inflation. Likewise, higher rates of employment (low unemployment) tends to see higher levels of inflation. The more people work, the more they can afford.

The problem here is that the unemployment that we are seeing reported in the Jobs Reportand the Weekly Unemployment Claims Reports are not reflective of the Effective Unemployment Rate.  We have seen record levels of people working two part-time jobs and during August we saw record levels of people working two full-time jobs during the month of August. People who lose one of their multiple jobs do not receive unemployment benefits even if they lose a full-time job.

The Fed should not raise interest rates because the effective unemployment rate exceeds 10% and may be over 13%.  The problem here is that the official unemployment rate is being reported at or below 5%. When the unemployment rate is below 5% we are considered to be at "full-employment." The reason for this disparity is the changes in the workforce participation rate. We are seeing a lower percentage of people participating in the economy for those between the ages of 16 and 64. We are seeing higher participation among those 65-69, 69-74, and 75 and older.

The Consumer Price Index is Split - Some things are experiencing inflation and some are experiencing deflation. We have seen energy "savings" that are supposed to acting as a stimulus to the economy. We have seen "appliance and electronics savings" for months and yet this has received very little press. The July CPI data revealed that we are seeing Medical and Shelter costs experiencing inflation.  We are also seeing record levels of taxes which are consuming any of our "energy savings."

The Federal Reserve Should not increase interest rates during periods of inflation. We are seeing housing inflation. Higher interest rates will increase housing costs further, as previously mentioned. Higher interest rates will impact car sales and credit card debt. Higher interest rates will accelerate costs and decrease spending.

The Fed Could increase interest rates to bring down inflation. The Fed thinks that if you increase interest rates you will cool down an economy. We do not have a "hot" market. The problem is that if they do not raise interest rates now while things are "relatively good" how will they be able to lower them when things get worse? The Fed believes tat anything over 2% inflation is "too much" for this economy to handle. Raising the interest rates will decrease housing demand and decrease sales prices. The shelter inflation we are seeing also includes rental costs. If mortgages increase people will lean towards rentals which are already under inflationary pressure. We need to see more jobs so that we van earn more money and afford to spend money on electronics, appliances, housing, cars, and other goods and services.

Retail Sales - Strong Retail FACTs. The July Retail Sales data, unadjusted, reflected a decrease in same month sales for six sectors in the economy. Yes, we saved money at the gas pump. We also saved money in the auto show room,  the Home and Building Goods Stores, the Electronics and Appliances stores, the clothing stores, and the General Merchandise Stores. We spent less money in these sectors during July 2016 than we did during July 2015. We have three sectors that saw lower July Sales during 2016 than we had during July 2006 (Home Furnishings, Electronics and Appliance, Gasoline.)

The Fed Could increase interest rates to cool off an overheating consumer economy. (He writes with a chuckle.) We are a consumption-based economy. The more we consumer the more we make. The more we make the more employees we need. The more employees we have the higher taxes we have. We are not overheating.

If we are not experiencing Jobs Pressure, Housing Pressure, Inflation Pressure, or Retail Pressure how can we raise interest rates? I know. Seasonally adjusted we are doing great. Let's seasonally adjust the Federal Reserve Job Situation. Let's seasonally adjust their pay.

By the way, we owe $19.4 Trillion dollars. What would increasing the interest rates have on the interest we are paying on the debt? 


A rate hike would be unpatriotic and irresponsible - so they are going to do it.