Will The Fed Raise Rates This Summer? It's Iffy

George Yacik - INO.com Contributor - Fed & Interest Rates

What a difference a week makes. Two weeks ago the odds were heavily against the Federal Reserve raising interest rates before September. Now it seems the market consensus believes the Fed will raise rates before the end of the summer, either at its June or July meeting (there is no meeting in August). I for one am still not convinced.

While I think the Fed certainly should raise rates at its next meeting – but then I thought they should have begun tightening monetary policy two years ago – I still don’t think it has the cojones to do so, despite some recent comments to the contrary. I also think politics will play a bigger role in a rate decision than many market observers believe. Indeed, I haven’t heard many of them bringing up that point. More on that in a minute.

What changed market opinion? Continue reading "Will The Fed Raise Rates This Summer? It's Iffy"

Their Greece, And Now Ours

George Yacik - INO.com Contributor - Fed & Interest Rates

"You mean, you were serious?"

You can just hear Greek Prime Minister Alexis Tsipras asking the European Central Bank that question after the ECB called his bluff and refused to advance Greek banks any more emergency funds, forcing them to close for at least a week and the Athens stock market to also suspend trading. Needless to say, Greece will default on a $1.7 billion debt payment to the International Monetary Fund that comes due June 30.

Until the ECB finally learned how to say No (or, in this case, Nein) over the weekend, Tsipras was confident that his following the J. Paul Getty school of financial negotiating ("If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem") would work and that the ECB and its fellow official creditors to Greece would eventually knuckle under to his anti-austerity demands and continue to kick the can down the road yet again. Continue reading "Their Greece, And Now Ours"

Jobs Report Not Enough to Signal September Liftoff

George Yacik - INO.com Contributor - Fed & Interest Rates

Was May's better-than-expected jobs report strong enough to convince the Federal Reserve to start interest rate liftoff in September?

Based on the market's reaction on Friday, the answer sure looks like yes. Yields on long-term U.S. Treasury bonds spiked to their highest levels since last October, and stocks were mostly lower.

But let's not carried away with one number and one report. Certainly the data-paralyzed Fed won't. If we get three solid months of positive economic statistics, then I’ll think there's a chance – albeit a slim one – the Fed will make a move in September. Until then, we'll have to wait and see.

Notice I've already written off next week's Fed meeting as the first interest rate increase. While the minutes of the Fed's April 28-29 monetary policy meeting "did not rule out" the possibility of raising rates at the June meeting, it was "unlikely" that economic data would justify doing so by then. Nothing's happened in the meantime to change that. Continue reading "Jobs Report Not Enough to Signal September Liftoff"

Beware The Biweekly Mortgage

George Yacik - INO.com Contributor - Fed & Interest Rates

A few weeks ago in this space I recommended that people investing for retirement should avoid the overpriced stock and bond markets and any imminent market correction and instead invest in themselves, namely by paying down their mortgage. It's a 100% guaranteed risk-free investment, and the amount of money you'll save will dwarf the return you might get on bank CDs. And it will make your household budget in retirement a lot easier to balance.

But one way NOT to pay off your mortgage is by calling one of those outfits that promise to help you pay off your loan early, for a fat fee, of course. They often advertise a "biweekly" mortgage in which you agree to send them one-half of your monthly mortgage payment every two weeks. By doing that, you're essentially making one extra mortgage payment a year, thus paying down your loan faster.

What the consumer is paying for, I guess, is the discipline to make those extra payments that they might not make on their own. Continue reading "Beware The Biweekly Mortgage"

Continued Weak Jobs Numbers Allow the Fed to Sit Tight

George Yacik - INO.com Contributor - Fed & Interest Rates

Was Friday's April jobs number good enough to get the Federal Reserve to start normalizing interest rates soon?

Based on the reaction of both the stock and bond markets, the answer is no. The increase was likely way too small to convince the data-paralyzed Fed that the economy has recovered enough to let it stand on its own feet. The sharp downward revision in the already lousy March figure only added to the case.

The jobs report – nonfarm payrolls rose 223,000 in April – was a lot better than March's report – which isn't saying a whole lot – but certainly not strong enough to worry investors that the Fed might see a reason to raise interest rates sooner than most now expect, which is either late this year or early 2016. Continue reading "Continued Weak Jobs Numbers Allow the Fed to Sit Tight"