Dollar Slides, Growth Slow, Are We Getting Closer to a Fed Rate Hike?

rate-hikeNew numbers show that the American economy only grew at a moderate/modest pace this summer through 8 of the Federal Reserve’s 12 districts. This is a slowdown from past reports that could encourage more caution among Fed policymakers in terms of raising interest rates.

According the Fed’s “Beige Book”, which is a survey of business conditions, and released Wednesday, growth weakened in two districts: Richmond and Philadelphia. In New York and Kansas City, the economy did not change. This is not as good an outlook as posted in July, when growth was moderate/modest in 11 of the 12 districts.

This report comes after the release of Friday’s jobs report which showed that hiring also slowed in August, reaching only half the pace of both June and July. In addition, a business survey found that manufacturing activity fell last month; and that could truly lessen the Fed’s outlook.

Unfortunately, consumer spending in each of the 12 Federal Reserve districts fell flat so the basic concern, now, is to see a return in consumer spending. Strong consumer spending, of course, has been one of the very few factors that actually lifted the economy throughout 2016. Furthermore, auto sales fell from a relatively high level at a time when home sales inversely rose.

Most economists had expected for growth to improve in the third quarter—to reach between 2.5 and 3 percent—which would be a major improvement over the first half of this year. During that time, growth was only found to be about one percent. Alas, the data only shows slight, if any, growth.

On the other hand, Fed officials still expect that they will raise interest rates within the next two weeks; while investors believe that there may be only a 15 percent chance of a hike. The odds, overall, of an increase at the Fed’s meeting in December have fallen by a substantial 46 percent, down from 50 percent last week. Basically, the odds for an interest rate hike appear to be very low.

It also appears that foreign markets are faring about the same. The Euro is only up about 0.5 percent, putting it only 1.1290 ahead of the US dollar while the British pound remained mostly unchained, holding at 1.3557 against the US dollar. In Japan, the yen only improved 0.2 percent to hold at 101.57 against the US dollar and the Russian ruble is up only 0.4 percent to hold at 63.8635 against the US dollar.