Why we won’t see you in September, rate hike

THE Fed’s interest rate decision is almost here! I think this is kinda’ like waiting for the result of your prostate exam — the government has already put its hand where the sun don’t shine and now you are nervously waiting for the doctor to say something. In this case it’s “Doctor” Janet

Yellen, the leader of the Federal Reserve, who’s been going around in circles on whether or not to raise borrowing costs.

Last spring almost everyone — me not included — agreed that an interestrate increase from the central bank was imminent. But the Fed didn’t raise rates back then, although it probably regrets it now.

Then experts started talking about a June increase — but nothing happened again. So people switched to predicting a September hike. Surely, the Fed would start putting rates back to a more normal level by then, they argued.

Well, it’s now time for that Septem ber meeting, and we will know what the Fed is going to do by midafternoon on Thursday.

For the record, I’ve been saying since the spring that the economy would start looking weaker during the summer and that this hotmonth downturn would unnerve the Fed and prevent a rate hike.

The economy has weakened. According to the Federal Reserve Bank of Atlanta, whose president is a voting member of the Fed committee that rules on rates, the economy right now is expanding by a pathetic 1.5 percent annual rate.

And it would be worse than 1.5 percent if the Fed used a realistic number for inflation calculation.

And as I also predicted, job growth in August looked much weaker than Wall Street anticipated.

That’s why I see no reason to change my forecast: I still believe the Fed won’t have the courage to increase borrowing costs this week. And most of the “experts” now agree with me.

In fact, I think the employment figures that will come out next month will be awful — and will also make an October rate hike unlikely and a December increase very iffy.

So this continues to be my prediction: Even though the Fed wants to raise rates, needs to raise rates and must raise them, there is a nearzero chance it will do so in September. The same goes for October.

Here are the reasons the Fed won’t hike rates this month (and on Thursday, I’ll tell you why Yellen may confound me and raise rates):

First, a rate hike will cost the US government a lot of money that it can’t afford. Already more than $18 trillion in debt, Washington is the main beneficiary of low rates.

With budget talks beginning in Congress, the government doesn’t want to pay more to borrow money. Washington can’t afford a rate hike. The Fed will also be very concerned that a rate hike will upset the financial markets. Governments around the globe have had to rig stock markets to keep them in check.

In the US, the stock market is in a bubble because of Fed interestrate policies. And Wall Street is already very skittish for a variety of reasons. The Fed probably won’t want to add to that nervousness.

Raising rates will also cause an increase in the value of the US dollar. And that will hurt companies that export goods to other countries.

That would ordinarily be no big deal. But China intentionally reduced the value of its currency last month to help its businesses sell overseas. So doing something that would increase the value of the dollar would play right into China’s hands at a time when China is the economic enemy.

nAs I mentioned above, the US economy isn’t doing well enough to shake off the negative effects of a rate hike. With the 1.5 percent growth in the current quarter, the economy so far in 2015 is expanding at less than 2 percent.

That certainly isn’t the kind of growth that — in normal times, which these ain’t — would warrant a hike.

The Fed doesn’t talk about economic growth much. It prefers to discuss “inflation” — which is the other side of the same coin. By contending that inflation is too low, as the Fed does regularly, what it’s really saying is that the economy is growing too weakly.

And recent surveys show Americans are less confident than they were earlier this year, which doesn’t bode well for the economy in the months ahead.

nCorporate revenues and earnings have been weak in 2015. So far this year, according to Thomson Reuters, earnings for the 500 companies in the S&P index are unchanged from a year earlier and revenues are down around 3 percent.

The sharp decline in oil prices account for a lot of that. But even when you factor out the energy industry’s troubles, this has been far from a stellar year for companies.

Higher interest rates will slow business down more. Companies won’t expand. Customers will curtail buying. This isn’t the type of environment in which the Fed should even be considering a rate hike.

nNeither the World Bank nor the International Monetary Fund wants the Fed to raise rates and have said so publicly. If rates are raised and something goes wrong, the Itoldyouso’s will be loud, clear and international.

nLast of all, the job market is only growing moderately once you filter out the statistical noise caused by seasonal adjustments, convenient assumptions, outright guesses and falsified data.

And unfortunately for the Fed, the noise is now making job growth look weaker that it probably is in actuality. The increase of only 173,000 jobs in August was very disappointing; the number should be worse for September.