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 Obama-Era Growth
Lockhart’s statement was made on Tuesday. Then, on Thursday, the Atlanta Fed announced its first estimate for growth in gross domestic product (GDP) for the third quarter, based on its GDPNow model. It’s best guess, which it attributes largely to falling investment in inventory? 1%. That’s one point zero, as in barely perceptible, almost undetectable to the human eye, hardly moving the needle, practically nonexistent. Maybe even pre-recession.
That’s only half of the rate of growth we’ve become accustomed to during the Obama era and, as we’ve repeatedly stated, 2% growth is pretty sad for the world’s leading economy.
With the economy growing so slowly – and with the Lockhart trial balloon deflating like a Brady football – will the Fed dare to raise rates in September?
“Ay, there’s the rub.” Maybe the anemic forecast qualifies as “significant deterioration in the data.”
While the 1% growth estimate is early, it comes on top of a Q1 growth rate of 0.6% (revised upward from -0.2%) and a Q2 growth rate of 2.3%. That averages out to a growth rate of about 1.3% year to date. And people are worried about China!
Given the non-booming economy, as Zerohedge notes, “all rate hike bets are off.”
“In short,” Zerohedge added, “if confirmed, not only is this a disaster for the economy, but an even bigger disaster for the Fed, which has now pegged itself into a rate hike hole, and can only unpeg it by destroying what little credibility it has left.”
Again, Shakespeare sums it up best:
“And thus the native hue of resolution
Is sicklied o’er with the pale cast of thought,
And enterprise of great pitch and moment
With this regard their currents turn awry
And lose the name of action.”
Maybe the Fed should add those lines to its next policy statement.