Another Fed Rate Hike In September Would Be Too Much Too Soon

Disappointing U.S. economic data may be tempering expectations of a Fed rate hike in the near-term, but officials maintain an optimistic tone concerning the idea of raising rates before the end of 2016.

“We are edging closer towards the point in time when it will be appropriate to raise rates further,” New York Fed President William Dudley told Fox Business on Tuesday.

Dudley insisted that a rate hike could be coming as soon as September, and his comments mirror those of Atlanta Fed President Dennis Lockhart from Tuesday.

“If my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year,” Lockhart said in a speech.

But as two figureheads from the mythical monetary governing body known as the Fed continue to spout optimism regarding their policies, the numbers tell a different story.

The Consumer Price Index (CPI), which calculates the change in the price of goods and services from the perspective of the consumer, is a vital piece of data when it comes to measuring changes in purchasing trends and inflation. The fact that a flat number (0.0 percent) was released when the expectation was 0.1 percent and the previous month was 0.2 percent means that perhaps optimism concerning consumers’ willingness to spend should be dialed back a bit.

And if consumers are unwilling to spend, that clearly correlates to a lack of enthusiasm to borrow which kind of takes the air right out of the Fed’s inflationary balloon.

Silver and gold benefit from Fed rate hike
Photo Illustration by Scott Olson/Getty Images

Yet another less-than-cheery number regarding the dollar came from the greenback’s index itself. The U.S. Dollar Index measures the strength of the dollar against six other currencies, and it collapsed on Wednesday by 0.9 percent to an intraday low of 94.38, its lowest level since June 27. Since hitting a four-month high of 97.62 back in late July, the index is down more than two percent.

In combination with a really weak May jobs report, the one rate hike being forecast by the Fed at this point would be much lower than the four they had projected last December. Pulling the strings hasn’t helped curb weak economic growth, market volatility, and falling oil prices over the winter. What this suggests is that market manipulation via a Fed rate hike can only cure so many ills when it comes to the economy.

What figures to benefit from all of this nonsensical posturing and propping up of the dollar by the Fed are the hard assets, such as gold and silver. These metals climbed modestly as talk of a rate hike heightened, with gold finishing at $1,356.35, up 8.75 or 0.67 percent on the day, and silver gaining some ground as well to $19.88 per ounce, up $0.03 or 0.15 percent.

Federal Reserve
[Photo by Mark Wilson/Getty Images]

Although these numbers may seem insignificant on their own, their relationship to the Fedspeak is undeniable. When the Federal Reserve so much as hints at printing more money and further diluting the supply with an increase in interest rates, tangible assets such as hard metals and commodities tend to respond. A Fed rate hike at this juncture would undoubtedly be too much too soon for an economy teetering on the edge, no matter how unwilling anyone in the public eye is to acknowledge it.

From Alan Greenspan to Ben Bernanke and now Janet Yellen, what the Fed has proven over time is that sound money doesn’t need an overseeing body to manipulate it and contort the numbers to fit an agenda. What this constant cajoling with flowery language accomplishes in the midst of moving decimal points to maximize profits is not often understood by the layman, but what an independent body like the Fed seeks by hinting at a rate hike is merely more control over you and me.

[Photo by Mark Wilson/Getty Images]