| Friday, December 5, 2014 | Issue #2431 | |
|
Why the Fed Won't Raise Interest Rates in 2015 Alexander Green, Chief Investment Strategist, The Oxford Club
 U.S. short-term interest rates have stayed near zero for six years.
But if there's one thing investment analysts of all stripes can agree on now, it's that the Fed will start gradually raising rates in 2015.
I wouldn't be so sure.
Yes, the Fed announced the end of its quantitative easing program in October. But it also said it would not raise interest rates for "a considerable time." It also said future rate changes would be "data dependent."
Translation? The central bank wants to see what happens with consumer prices. In particular, it wants to keep inflation under 2%.
That shouldn't be a problem. The current rate is only 1.7%. And even that should soon come down. Why?
For starters, the U.S. is about the only healthy horse in the race among developed nations. Europe is stagnant. Japan is back in recession. Even China is struggling with slower growth.
Weak global demand keeps a lid on inflationary pressures.
So does a stronger dollar. The greenback is up 10% since May and recently hit a five-year high against the euro and a nine-year high against the yen.
That makes imports cheaper in dollar terms. And makes it tougher for domestic companies to raise prices. Score one for consumers... and for inflation hawks.
The Oil Patch
Then we have the recent trouble in the energy sector. Since mid-June the price of Brent crude has plunged more than 30%, from $116 a barrel to a five-year low of $67.50 on Monday.
This is bad news for oil exploration and production companies. But it is good news for almost everyone else: chemical companies, manufacturers, auto retailers, transportation companies, most other businesses and virtually all consumers.
Lower oil prices translate into lower petrol prices at the pump. (And lower heating bills in some places.) Consumers then take that extra discretionary income to the mall and stimulate the economy.
So let's do a quick summary. The global economy is soft. Commodity prices are down. The dollar is up. Wage pressures are almost nonexistent. And inflation is MIA.
So why would the Fed start raising rates? Just for the hell of it?
The world's central banks want to do everything in their power to get national economies revved up before tamping on the brakes.
And with all these disinflationary pressures at work, the Fed may leave interest rates alone through all of 2015... fooling the guessers once again.
This is good news, of course, for the stock market. Low interest rates make it cheaper for consumers and businesses to borrow. It also makes cash and bonds unattractive relative to stocks.
Moreover, one of the oldest saws on Wall Street is "Don't Fight the Fed." History shows that bull markets often end within six months of the first interest rate hike.
So if you're long equities, you want an accommodative Fed. And that's exactly what we have.
Good investing,
Alex
Editor's Note: Lower energy prices is one reason Alex has argued we're on the cusp of a new Golden Age for investors. Yet others disagree. On March 11-14 at the beautiful Renaissance Hotel in St. Petersburg, Florida, he'll join dozens of analysts to discuss how to profit... either way. It's all part of the 17th Annual Investment U Conference, our most important event of the year. But you must register by December 15 to claim your early bird discount. For more information, simply click here now or contact Opportunity Travel by email at info@opptravel.com or by phone at 561.243.6276 or 800.926.6575, ext. 104, 105 or 106. | |
|
Achieve Your Financial Goals in 2015
Our investment experts have a knack for pinpointing the best investment opportunities out there. In fact, some of their research has recently helped them identify plays that went on to soar 227.50%... 440.38%... and even an extraordinary 775%...
Typically, the only way to get your hands on this research is through their premium research services, which sell for thousands. But now, there's a way for you to "test drive" each one - for just pennies on the dollar.
To find out how, simply click here now. | |
|
| |
GoDaddy controls around 30% of the domain registration market, thanks to a racy advertising scheme that links website registration with sex appeal...[But] there's already talk that Google has sent GoDaddy's stock hopes south. Read On... | |
|
| |
It's up 13% in just a few weeks, with plenty of upside left, and pays a safe and respectable dividend. Readers of Investment U's premium edition are discovering it today. Learn how to join them by clicking here. | | |
| |
Boy, we couldn't get past the first weekend after Thanksgiving without Wall Street having a panic attack. The problem was the National Retail Federation's Black Friday survey of consumers. Read On... | |
|
|
|
Thanks to Nobel Prize-winning science, doctors are learning how to "switch off" disease inside cells. Cancer, heart disease, strokes, diabetes - even aging itself... all could be cured at last. And one tiny company in Massachusetts holds the key to rapid FDA approval of this breakthrough treatment. 
No comments:
Post a Comment
Keep a civil tongue.