The Fed is frustrating (and won’t raise rates in 2015)

The Editors at BloombergView are spot on with this one:

Here’s the point, and it’s really quite simple: The Fed doesn’t know when it will start to raise interest rates, nor should it have to know, nor should it indulge analysts’ misconceived determination to find out. Interest-rate changes are not, and should not be, on a schedule. They depend entirely on what happens in the economy, and the Fed — like every last one of those analysts — doesn’t know what will happen. What it can and should do is draw attention to the economic indicators it is following — in particular, indications of inflation pressure in the labor market. The rest just sows confusion.

On a related note, I made a public prediction earlier this week that the Fed will not raise rates in 2015. Inflation, as measured by the Fed’s preferred PCEPI, is just too low. Fears of runaway inflation are totally unfounded in the data. Yes, stock values are soaring high enough to scare some investors, but Yellen has insisted that the presence of speculative bubbles is no reason to raise rates. That decision will come, she says, only once the two arms of the Fed’s dual mandate—unemployment and inflation—look good. And right now, inflation looks anything but. Yellen has always been a deflation hawk, anyways.

For more of my views on this topic, see my recent piece at Enhancing Capital. This is the startup I’ve mentioned on my blog before—an investments e-newsletter that “brings market analysis to life.” In this case, that’s more than just a cheesy slogan. They do some pretty cool stuff with data visualization that keeps things simple and straightforward without sacrificing depth of research. Most of my content there regards larger economic trends, but stock picks and sector analyses are their specialty. Check ’em out!

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