5 Reasons The Fed Not Raising Interest Rates Is Causing Harm To The U.S.
The highly anticipated Federal Reserve decision today to not raise interest rates has been debated countless times. The argument can be made both ways whether it’s good or bad, but here are 5 reasons the Fed decision is harming the U.S.
Money is too easy to get hold of.
In leaving rates on hold, The Fed left the cost of borrowing money low. It has been historically low for almost a decade, thanks to the Fed. Investors of all stripes respond by taking more risk and The Fed’s ON HOLD decision reinforces that behavior. Some investors assume these conditions will last forever and borrow more money (because they are paying low interest) than their investments will one day return. When you hear people warn about a “bubble”, this kind of easy money cycle is the #1 reason cited.
All the businesses that look like they are working beautifully may only be working because of current lending conditions.
The Fed has held rates at ZERO since 2008; tech start-ups including Uber, Snapchat, Pinterest and many more have never been tested in times when prices fluctuated. These are the companies that are hiring thousands of people, are considered growth engines and are paying very attractive salaries. If business leaders think their models work in all kinds of environments, even in more disciplined monetary ones, and they are wrong, a lot of people will be laid off and a lot of confidence in these new wunderkind companies will be lost.
If you have money in a savings account, you know that the bank is not paying you any interest for being allowed to hold and use your money. In some cases, through fees, you may actually be paying a bank to hold your money. The Fed ON HOLD means this situation stays exactly the same. You have no monetary incentive to save money through traditional means.
An increased perception of global risk.
The Fed staying on HOLD due to risks in the global economy shows you that the Fed is worried about China’s economic slowdown. China has a $17 Trillion economy, second only to the US. It is big. The fact that The Fed is concerned lets most investors know that some of the greatest economic minds are uncertain about the future health of the global economy.
In its statement, the Fed says it sees “continued slack in the labor market.” This underscores the point that those who watch the Labor Market understand: the Labor Market Participation Rate is at the lowest rate since the late 1970s. It means that lots of people have just given up looking for work. There is a skills gap in the US; more than 4 million jobs go UNFILLED every month because Americans do not have the science or math or engineering skills necessary for the jobs that are on offer. The Fed notices and is concerned about that.
Deirdre Bolton joined FOX Business Network (FBN) as an anchor in February 2014 and is the host of Risk and Reward with Deirdre Bolton (weekdays 5-6PM/ET).