Finally, we are in that place where the Federal Reserve more than likely has very little wiggle room left. The policymakers find themselves at this crossroads largely due to their own ineptitude and complete failure to look at an increasingly inter-connected world, like the bankers at the International Monetary Fund or the World Bank or the European Central Bank or, heck, even the People's Bank of China have been doing.
With an obsessive focus on peak employment in the U.S. (we are there now, with unemployment at 5.1%, however misleading that data point might be) and inflation (nowhere close to the 2% Fed target) and nothing else, the Fed heads are now close to raising rates for the first time in almost nine years.
There has been a lot made about the two choices that the Federal Reserve is currently faced with and I have written a few articles on the site on this issue.
"To raise or not to raise, that is the question," and then how to deal with the subsequent fallout. At this point, I think they should raise and go away for a while and do their "data dependency" shtick.
If they don't raise interest rates, will it raise questions and fears about what lurks around the corner? Some folks say that if they don't raise, it will look like they caved in to the IMF/World Bank/ECB, which is pure hogwash. In an increasingly inter-connected world, like it or not, we are not, and will never be an island, no matter how much the Fed policymakers attempt to fool themselves and the rest of the world.
Take a look at the following quick data snippets:
- For 2014, U.S. exports of goods and services reached an all-time record of $2.35 trillion dollars.
- U.S goods exports were $1.64 trillion in 2014.
- U.S services exports were $710.3 billion for the same year.
- 95% of the world's consumers live outside of America.
So to those folks, including Richmond Fed head Jeffrey Lacker, saying that exports make up only a small portion of the U.S. economy, I say on a percentage basis that might be true, but if we ever hope to grow our economy beyond a measly 2% at best, we better pay attention to what is happening globally.
The last couple of days we have seen our markets climb pretty sharply, considering the Fed event today. What if markets have decided that it really does not matter whether the Fed raises today or not? If they don't raise today, they will raise the next time around. If they raise today, it will only be 25 basis points, which matters zilch in the overall scheme of things.
So raise or not, maybe the markets have decided it should be business as usual after the last few months have been wasted obsessing over the rate decision?
We will find out in a little less than eight hours.