To raise, or not to raise – that is the question:
Whether ’tis nobler in the mind to suffer
The barbs and insults of outraged pundits and journalists
Or to raise rates in spite of a sea of troubles
And by raising rates extend them. To stagnate, to grow —
No more (than 2%) – and by a flatlined economy to say we end
The headache, and the thousand natural shocks
The stock market is heir to.
We could go on imagining Fed Chair Janet Yellen in the role of Hamlet, another famous person who met with tragedy due to procrastination. We could make note of “the law’s delay, the insolence of office, and the spurns that patient merit of th’ unworthy takes,” even if we don’t know what “spurns” Shakespeare was talking about when he wrote Hamlet.
We could go on, but “conscience does make cowards of us all,” so we’ll leave it at that and turn instead to last week’s comments by Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. Lockhart said “the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September.”
The experts will tell you that anticipation of increasing rates is built into current stock prices, but if that’s the case, why did stock prices drop to their lowest levels since February after Lockhart’s remarks? Maybe it was the disappointing earnings reports for the quarter, or the still-not-there employment numbers, but the most direct correlation appears to be with the fear of rising interest rates.
Keep in mind, too, that the statement didn’t come from the chairwoman. Granted, Mr. Lockhart is a member of the Federal Open Market Committee, but he’s not Janet Yellen. Perhaps the idea was to see what impact his comments would have so the Fed as a whole would still have the option to not raise rates in September. Mr. Lockhart apparently drew the short straw at the last FOMC meeting. (more…)