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Is It Time To Raise Interest Rates?


When it comes to markets, specifically the stock market, analysts are always seeking a correlation between the market’s performance and external influences. One correlation that has been consistently accurate over the past 24 months is the market’s downward volatility just prior to the Federal Reserve’s predicted timeframe for a hike in interest rates. Though not the most scientific predictor, and possibly no more than a coincidence, this week we have once again seen a highly volatile stock market a mere weeks before the Fed was predicted to increase their short term interest rate.

While the actual reason for this volatility is the rapid slowdown in China’s economic growth and the subsequent meltdown of Asia’s stock markets, the significant decline in the Dow on Monday has increased the number of pundits, analysts, economist and other market watchers calling on the Fed to reconsider an interest rate hike that could occur as early as next month. Interestingly, and as pointed out in the Wall Street Journal article, China only accounts for 7% of US exports while accounting for 21% of US imports. This means that a slowdown in sales to China is likely to have little impact on US economic growth and, by extension, should have little impact on the Fed’s interest rate decision.

Overall, while sluggish, the US economy has realized 2.1% annual growth since 2009 and economic output during 2Q2015 is expected to be revised upwards to 3.3%. Combined with the dramatic drop in oil prices, increased consumer confidence and continued growth in real estate sales and pricing, there is a growing amount of support for the Fed to start raising rates during the latter half of this year.

What are your thoughts? Is it time for the Fed to start raising interest rates or should they continue to hold them at current levels?

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