The Most Important Question Of The Week

September 19, 2016 at 9:28 am Leave a comment

You are forgiven if you have mistaken the media’s coverage of the upcoming meeting of the Federal Reserve’s Open Market Committee on Tuesday and Wednesday for the plot line to a Lifetime movie; “Will they or won’t they?  Can they and should they?”   But there is no mistaking the importance of the decision of whether or not to nudge interest rates higher or the impact it may ultimately have on your credit union. If the Fed gets it right, it will, at the very least , enable you to get a bit more of a return on  your loans and investments.  If the Fed gets it wrong, it will hasten the onset of another recession.

What makes the decision so perplexing is that the economic signals being sent are so contradictory. For example, last Tuesday the Census Bureau reported  the most positive economic news that anyone has heard in  years.  Real median income increased by 5.2% for American households between 2014 and 2015 to $56,516, an increase in real terms of 5.2%. This is the first  increase  since 2007, the year before the onset of the Great Recession. In addition, the report indicates that all income brackets and regions in the country experienced increases.  Combine this news  with a falling unemployment rate  and you can easily conclude that  the Fed may have waited too long to raise rates and could easily lose control of inflation  if it doesn’t act fast.  In fact, a report released on Friday by the Department of Labor indicates that, depending on what inflation measure you use inflation is on the rise. The Core Consumer Price Index, which excludes volatile items such as gas, has risen 2.3% in the past year,  well above the Fed’s 2% inflation target.

So raising interest rates is a no brainer, right? Not really. Take,  for instance, the falling unemployment rate.  Even as the job market is tightening there are signs that employers are still uneasy about taking on new job seekers. According to the WSJ “about 300,000 fewer people are being hired each month compared with the pace reached in February.”  There are a lot of jobs that are going unfilled.

And if economic growth is reaching into households then why is almost half of the American public contemplating voting for Donald  Trump? His doom-and-gloom portrait of an America in decline wouldn’t have any traction if people felt confident about their economic well-being.

And the spike in the household income only partially masks  larger trends that are continuing to dampen enthusiasm for consumer spending.  For example, the same census Bureau also reported that a growing  number of Americans  have health insurance; but does anyone really believe that healthcare trends are headed in the right direction with so many major insurers pulling out of the healthcare exchanges and costs continuing to rise?

Finally income and equality is continuing unabated. The Bureau reports that since 1993 it has increased 5.5% and was unchanged by the household income gains.

What all this means is that there are many crucial questions to which we won’t have answers until  we are still enjoying the fruits of economic growth or tiptoeing towards  recession.

On that note enjoy your Monday.

Entry filed under: Economy. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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