6 Things You Need to Know About the Fed's Friday Speech

Fed chairwoman Janet Yellen gave a speech to the American public on Friday, where she went into detail about what the Fed thinks about the economy. These are the 6 biggest facts that you should be taking away from the recent presentation.

1. Rates Are Going Up This Year

There's no doubt about it, the prime rate is going up before the year is over. The Fed's economic forecasts don't leave any room for speculation, they will be raising interest rates by December. Many people think that September is the most likely time to see the first rate hike.

2. The Economy Is Still Brittle

One thing that Yellen made abundantly clear was that, while the economy is strengthening, it's still brittle.
We're very vulnerable to sudden dips in consumer spending, poor earnings, sluggish trading, and everything else that conspires to keep share prices in the basement.

3. Fed Wants Rates To Stay Low For Now

As of right now, the Fed has no problems with low interest rates. Inflation isn't a big concern right now for our economy -- especially compared with countries like China who are already taking emergency measures to fight it. The dollar is strong, and our economy is strengthening, but the Fed is happy to play the waiting game until the timing is perfect.

4. The Labor Market Is Improving

Little by little, the labor market is improving. Unemployment has been rocky and uneven, but in general the rates are falling and jobs are filling up. The quality of the labor market is another question altogether, since most jobs are being created in the service sector, where pay and benefits are poor.

5. Rate Hikes Are Coming A Little At A Time

When the Fed finally does decide to raise rates, it won't be a one-and-done. Rates will keep creeping up until the Fed is satisfied that it is taking an active role in fighting inflation. Even more importantly than that, they need to make some breathing room with interest rates. Right now they're at the very bottom, but the prime will rise a little at a time until the Fed feels like it has all of the tools it needs in its belt in order to manage the economy.

6. The Recovery Is Progressing Slowly

The biggest takeaway from the chairwoman's speech is that the Fed clearly sees the recovery as taking longer than expected. The smart money on a rate hike before this speech was in June, but that no longer looks like it will happen. A recent downturn in consumer spending could be the culprit, especially as unemployment numbers have largely been in line with predictions.

 If You're Thinking About Buying Bonds, Maybe You Should Wait

A lot of people look toward buying bonds in the summer when the markets are sluggish and consumer spending is up. Even though the market promises to be slow this summer, it might be a better idea for rates to climb up before you make a multi-year commitment with your money. There's no doubt about it, rates are heading up this year, all you need to do is be patient.

By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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