Wall Street is just atwitter over the Fed raising interest rates tomorrow -- for the first time in nine years. (Back then, millions of current investors could not even find Wall Street on a New York City map.) Five years ago, three years, and even last year, Wall Street was terrified of a rate increase, but no longer. It wants a rate increase, and it wants it now! In September, Wall Street thought the Fed would act then. When it didn't, the stock market threw a tantrum and tanked. The latest CNBC survey shows a whopping 95% of investors believe the Fed will act tomorrow and raise interest rates modestly. They finally see an increase as a vote of confidence in the economy from the Fed. (If they don't raise interest rates tomorrow, expect another tantrum, also known as a buying opportunity.)
Given the dual mandate of the Fed to hold down both unemployment and inflation (which Keynesian economists argue is next to impossible), I have long believed there is no reason to raise the rates, as both unemployment and inflation are well contained. In September, however, we learned the Fed is also paying attention to international considerations, especially currency exchange rates. Raising interest rates in the U.S. makes the dollar stronger and other currencies weaker. This is bad for large companies who sell abroad, as it makes their products more expensive for foreigners to buy. This is especially true when the central banks of Europe and Japan are more stimulative, while our central bank is becoming less stimulative. This also argues NOT to raise rates, but who cares?
Libertarians have long feared the Fed and give it no credit for avoiding a depression in 2008. They claim, with some justification, that keeping interest rates this low for so long causes other bubbles to form, like we now see in art, antique autos, and even wine. Knowing the public doesn't like the notion of raising interest expenses, they have fashioned a term-of-art for it -- normalizing interest rates. But, after nine years, I'm not sure the definition of normal is unchanged. I am sure that I'm tired of hearing the Libertarians whine.
Now, I just want it over with. It is not unlike losing your virginity. Long afterwards, you laugh that it was ever such a big deal. This interest rate increase is just a huge distraction for Wall Street. Once this is past us, we can then obsess about something else, such as the much-too-low price of oil.
Given the dual mandate of the Fed to hold down both unemployment and inflation (which Keynesian economists argue is next to impossible), I have long believed there is no reason to raise the rates, as both unemployment and inflation are well contained. In September, however, we learned the Fed is also paying attention to international considerations, especially currency exchange rates. Raising interest rates in the U.S. makes the dollar stronger and other currencies weaker. This is bad for large companies who sell abroad, as it makes their products more expensive for foreigners to buy. This is especially true when the central banks of Europe and Japan are more stimulative, while our central bank is becoming less stimulative. This also argues NOT to raise rates, but who cares?
Libertarians have long feared the Fed and give it no credit for avoiding a depression in 2008. They claim, with some justification, that keeping interest rates this low for so long causes other bubbles to form, like we now see in art, antique autos, and even wine. Knowing the public doesn't like the notion of raising interest expenses, they have fashioned a term-of-art for it -- normalizing interest rates. But, after nine years, I'm not sure the definition of normal is unchanged. I am sure that I'm tired of hearing the Libertarians whine.
Now, I just want it over with. It is not unlike losing your virginity. Long afterwards, you laugh that it was ever such a big deal. This interest rate increase is just a huge distraction for Wall Street. Once this is past us, we can then obsess about something else, such as the much-too-low price of oil.
