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Using The Plastic - By Charles Payne

Question of the Week

Based on the relatively strong May jobs report, and the fact that consumers are slowly coming out of their shells when it comes to utilizing credit, do you feel that it is now more likely that the Fed will look to raise interest rates by September 2015? We'd love to hear your thoughts.

Yes
No

As usual, the session after the jobs report will start out flat and quiet. The Street is still grappling with all the implications from that report which came in much stronger than anticipated; although, it mostly offset an April report that was a complete dud. Moreover, the wage conundrum continues and that might be the linchpin to a series of moves that are inevitable. The Fed has to raise rates, and for me, the sooner the better. But can they really hike rates with wage growth that's barely kept up with inflation in the past year and trailed mightily in years prior?

So we play the waiting game, which might actually increase volatility and make the eventual response to a rate hike more reactionary than it needs to be. But let's face it, there are so many doom and gloom folks screaming at the top of their lungs after six years of being wrong that this might be their last chance to be right.

As is always the case, the consumer credit report got no press on Friday yet consumer spending is two-thirds of the economy and the key to keeping the market higher once the Fed begins to hike rates. While wages have been flaccid, the more people that get to work, the more money pours into the economy. Plus, it looks like people have turned to using credit now. Revolving credit (credit cards) saw its second biggest percentage increase in the past six years while non-revolving (student loans and autos) slowed dramatically.

April Consumer Credit

Percentage

Change

Actual

Change

Revolving

11.6%

$8.6 billion

Non- Revolving

5.8%

$12.0 billion

It's never discussed out loud, but the Fed's biggest goal is getting people to spend money they really don't have and that means using credit. American households have been careful not to take the plunge but now it's clear they have begun to nibble.

If Americans start to say "charge it," this could be the trigger that gets the Fed to begin to normalize rates.

Revolving

First Quarter

Percentage Change

2011

+0.02

2012

+0.06

2013

+1.45

2014

+3.70