Is It Finally Time to Start Ignoring the Fed?
PUBLISHED ON: Sep 24, 2015
Overseas trading today saw markets falling around the world. Japan’s Nikkei lost 485 points in trading today. Hong Kong’s Hang Seng was down 207. In Europe, Germany’s DAX lost 182 points, while France’s CAC lost 86 points and London’s FTSE dropped 71 points.
Caterpillar (CAT) to Cut 10,000 JobsHeavy equipment manufacturer Caterpillar (CAT) announced today that it was cutting jobs in an attempt to salvage profits for the year.
Is It Finally Time to Ignore the Fed?Ever since the Federal Reserve passed on raising rates earlier this month analysts have been saying some surprising things. The general sentiment is that, even if the Fed were to act this year, it will probably only raise the prime rate by 0.25%. They’re wondering whether or not this tiny boost to prime rates would have much effect, and asking the question, “Is it finally time to start ignoring the Fed?”
A raise of 0.25% -- or even 0.50% -- would have a negligible impact to the economy at large. The only real reason that people are still paying attention to what moves the Fed might or might not make is a psychological one. With rates pegged at 0% for so long -- almost 8 years at this point -- will the change back to positive rates hurt the banks?
At this point, the financial services sector is already suffering. The Finance sector as a whole is down almost 7.50% in the past three trailing months. Would a tiny raise in the prime rate really have that much impact on banks and mortgages? I feel like the safe answer is no, but with one big caveat. Any move by the Fed could be a destabilizing factor in the economy, at a time when America is the only economy in the world on firm footing.
It might not seem like it to some, but compared to other world economies the American recovery is a successful one. Asia has only recently begun imploding, South America is an emerging market, and Europe has had problems for over a year. Right now, American securities are the safest place to put foreign money, and that’s a good thing. Changes in the prime rate could affect overseas investment in the US at a time when we’re seen as a life raft to sinking world economies.