When Will The US Fed Hike Rates Again?

I will try to make a bold prediction : The Fed will not raise rates again this year.

The Fed started cutting rates (ZIRP) during the 2008 Global Financial Crisis (GFC) to save its economy. Then it started buying bonds to flood the markets with funds to boost demand. After 8 years, global growth is still weak. Most central banks continue to be in a rate cut mode – New Zealand being the most recent. The printing of money had allowed hot money to flow to all asset classes like property, art and wines.

The Fed pioneered the pumping of funds into the system and most countries are learning from them – Japan, Europe and China being the biggest now. Negative rates (NIRP) are now punishing savers and resulting in more reckless borrowing. Deflation persists as consumers are not convinced that things are getting better, preferring to save for rainy days ahead.

I am certain that the Fed will be the first central bank to hike rates again in the future, after doing so last Dec. This is because the US is far ahead of the rate cut game that the rest of the world and marginally stronger versus most countries. But all signs point to a still fragile US economy which is not likely to improve much further this year. Most companies are still announcing profit warnings and excessive borrowings are causing fault lines to appear for sectors like commodities, where prices are still weak. Politically, this is also an election year which will happen in Nov.

Yellen cannot afford to kill whatever little strength the economy has now, nor add on more volatility to the already confused market. The rate hike will be talked about in future FOMC meetings to manage the markets, but it is likely that we will only see concrete action in the 2nd half of 2017 at the latest.