File it under “Boring, But Important”: People have been eagerly (for some reason) awaiting the Federal Reserve’s decision on whether or not to increase the interest rate during what is now their sixth meeting to discuss the subject. Well, the Fed announced today that there would not be a hike in interest rates in the near term. It’s a pretty big deal because it signals that the Fed believes the economy is still not ready to be weaned off low rates. This kind of announcement actually runs counter to what the Obama administration would like to claim – the economy is back and better than ever.
Basically, what’s happening is this: the economy isn’t doing as well as everyone would hope. The unemployment rate (the true number) is still incredibly low. Job numbers are rarely as high as they should be and always revised downward. Some data actually suggested we could be on the verge of another recession earlier this year. The overall growth of the economy is still sluggish, and it’s simply not a good idea to jack up the rates yet.
However, the Fed is also promising that the near future could see a rate hike. Unlike other times they’ve suggested it, this time they’ve strongly suggested it, which bodes well for people who like to watch the stock market do incomprehensible things.
See, lower rates are supposed to make borrowing easier, which in turn leads to more investment. But, that investment isn’t happening. People are borrowing just to buy more. The growth isn’t there. Raising those rates however, puts investment on the back-burner. So, the Fed isn’t comfortable raising those rates. However, they really should do it.
The Fed is incredibly nervous, and rightly so, about any sort of instability to the economy. That’s why the rate isn’t go up. It would make the stock market sink like a fat guy in a tub of chocolate pudding. However, the stock market is the bi-polar, obsessive ex-girlfriend of the financial world. It freaks out at the drop of the hat. It’s a terrible means of predicting the long-term forecast of an economy.
What raising the rates will do that is infinitely more meaningful is signal faith in business strength in America, which is actually a morale boost that the nation really could use right now. The business environment in America is actually doing pretty okay. We aren’t in another recession, and the odds are that we won’t be hitting another one within the next year. The Fed could very well send a signal stating that they believe this is true, and it could go a long way in making folks a lot more confident in the financial security of our economy.