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No October Rate Hike Despite Job Growth

David Payne, Job Growth

With David Payne, Staff Economist – Kiplinger Letter

Everyone’s wondering what’s next for interest rates that have been at all-time lows for the past 6 ½ years. David Payne sheds some light on this and talks about how job growth and inflation play into the Fed’s decision.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger’s forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist’s Office of the U.S. Department of Commerce. David has co-written weekly reports on job growth and economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics.

David expects an increase in interest rates by the end of the year based on Fed Chair Janet Yellen’s comments but there are doves and hawks within the Fed’s rate setting committee so the jury will continue to be out till rates are raised.

The Fed, of course, will base its hike on economic fundamentals. One of the data points the Fed watches is job growth and employment – which is doing pretty well in the U.S. and supports the case for a rate hike. But another Fed measure – inflation – isn’t an issue; it’s well below the Fed’s 2% threshold rate for action due to factors such as low oil prices and a strong dollar that continues to make imports less expensive. Slowing growth in China also raises concerns over the strength of the global economy, and gives pause to U.S. economists.

Now, when rates rise – which they will at some point, who knows when – David expects the increase to be slow and measured, as the bond market expects – with about one rate rise in mid-2016 and the other towards the end of 2016.

David also talks about how a rate rise will ripple through other borrowing costs and rates on CDs. With the Fed meeting this week, let’s wait and see what they say about the state of the economy and inflation.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.