September 24, 2018 — The Fed is Raising Rates this Week

SEPTEMBER 24, 2018 — THE FED IS RAISING RATES THIS WEEK

The market says there is a 94 percent chance of a 25 basis point rate increase at the Fed meeting later this week.  The data supports the Fed’s decision.  The Dow Jones hit new highs last week, indicating the strengthening economy is not slowing down.  Economic output is growing at the fastest rate since 2014, the unemployment rate the lowest in nearly 20 years, and initial jobless claims fell to the lowest levels since 1969. The boom is, in part, due to the tax overhaul passed last year that is starting to take effect.  But we have to wait to see what will happen once the new trade tariffs click in this week.

The September rate hike is a done deal, but what about December’s? Some economists think the Fed will cancel the scheduled December rate hike because the trade dispute will hurt the economy.  They expect November unemployment numbers, released December 7, to deteriorate, along with drops in retail sales and capital goods orders and shipments.  Other feel the tariffs will have no effect in 2018; any impact will be delayed to 2019.

Regardless, rates are not going down.  Interest rate swaps remain a valuable tool to lock in today’s relatively low rates to avoid increasing rising interest rate obligations in the immediate future.

 

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