Why There's No Way The Fed Should Hike Rates

Chris B Murphy profile picture
Chris B Murphy


  • With the recent positive economic developments, the markets expect a rate hike from the Fed during their March meeting.
  • However, U.S. growth is anemic with last year coming in below 2%, and growth is forecasted to be 1.3% this quarter.
  • History has shown, the Fed has hiked rates with much higher economic growth. And U.S. growth has slowed since the Fed started hiking in 2015. .

There's been an enormous amount of positive news surrounding the U.S. economy as a result of expectations of a Trump administration fiscal stimulus. The U.S. economy has low unemployment, solid job growth, and wage growth has finally perked up.

Equity markets and bond yields are rallying on the expectation of economic growth. Finance experts are telling us on the financial news networks that the economy might overheat, and the Fed has been "behind the curve". According to the experts, the Fed needs to get with it, and hike soon, perhaps three times this year. If the Fed doesn't hike, as I just watched on Bloomberg TV, the U.S. economy might overheat.

So it's obvious, the Fed should hike, right?

Well, here's why the Fed should NOT hike in March, and the next hike shouldn't occur until September, at the earliest.

The markets have been surging on the expectation of growth. And therein lies the problem. The growth side of the equation needs to kick in first before the Fed considers hiking again.

In the overheating U.S. economy, the last GDP print was 1.9% for Q4 2016, and 1.6% for all of 2016. Recently, forecasts were released whereby GDP growth is expected to grow at a bustling 1.3% in the first quarter of this year.

Does it sound like the U.S. economy is overheating? And if equity markets and yields are surging on expectations of growth, might they adjust lower on the expectation of lower Q1 growth?

It's clear that many investors believe the economy will post solid growth in 2017. However, our growth forecasts and expectations of fiscal stimulus should not be the basis for the Fed to decide monetary policy.

What about the Fed mandate of price stability and maximum employment?

It appears the U.S. economy has reached maximum employment, and

This article was written by

Chris B Murphy profile picture
Hello. I'm a financial writer/blogger & market risk analyst with 15 years in the financial services industry including over 10 years on trading desks of two major banks. --------------------------------------------------------------------------------------------------------------------- My Top-Down meets Bottom-Up Approach to financial analysis includes: ----------------------------------------------------------------------------------------- How Macro Trends & Economic Indicators, Bond yields, Capital flows, & The Fed - Drive Sectors & ultimately Individual Stocks. - Financial analysis of Bank stocks, Commodities, Industrials, & Tech. - Former currency risk advisor to Corporates, with Options and risk policy experience.- Published Work includes: Financial analysis (Investopedia); - Retirement Income (RetirementIncomeAnalyst.com) & Wealth Management Firms. - Hold an Economics degree with a concentration in Finance (University of Rhode Island).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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