BEWARE! FED RATE HIKE COULD BURST BUBBLES KATHY FETTKE
This is the first rate hike of
2017 and the third since
December of 2015 when
the cycle of monetary
tightening began after the
Great Recession. The first
rate hike brought the
overnight lending rate a
quarter percent off zero. The second rate hike three
But there are big questions about U.S.
economic growth.
months ago, raised it another quarter point. The
latest increase brought it to a range of 0.75% to 1%, If you focus on the stock market, you might think the
which is still quite low historically. economy has been advancing rapidly. Wall Street has
been on a bull run since President Trump was elected
Consumer loans may notch up a bit because of the
with the Dow hitting over 21,000 for the first time ever.
rate hike but economists say with so much talk about
the increase, many lenders have already priced it in. There’s also been a steady increase in jobs with
And some economists say the hike has more to do unemployment dropping from the double digits during
with Yellen’s desire to portray the economy as the recession to under 4.7% right now. That’s giving
“healthy” than it does with monetary policy. consumers confidence about the economy, despite flat
wages. The February report on consumer confidence
She said during a press briefing: “We have
says it hit a 15yearhigh of 114.8.
confidence in the robustness of the economy and its
resilience to shocks.” And that: “It’s performed well But what some economists are pointing out is the
over the past several years. We’ve created, since the troubling lack of economic growth. Chief investment
trough in employment after the financial crisis, strategist at Clarity Financial, Lance Roberts, wrote in
around 16 million jobs.” a blog, that: “Outside of inflated asset prices, there is
little evidence of real economic growth.” And that’s
Raising the Fed Fund rate is supposed to one thing that Janet Yellen said a rate hike would be
correspond with a robust economy. Increases are tied to — economic growth.
meant to keep inflation in check. If economic growth
and inflation are rising too quickly, a rate hike helps The gross domestic product, or GDP, is our economic
slow them down as it tightens the money supply. report card. And the Atlanta Fed just downgraded the
firstquarter GDP to just .8%. That’s well off the 2%
Core inflation is about 1.9% right now. Up slightly that Janet Yellen said is needed for a rate hike,
from the previous forecast and righ