September 17th is
rapidly approaching, and on everyone’s mind is whether the Fed will continue
their dovish stance or begin to raise interest rates. Here’s a few reasons why
the Fed will most likely continue their ZIRP on the September 17th FOMC
Meeting:
1. Slowdown
in China
2. EM
currency depreciation
3. World-wide
Oil glut
4. China’s
US Treasury dump
5. Recent
market volatility
6. Weak
labor participation
7. Inflation
expectations not met
Although we seem to be hitting
the Fed’s unemployment expectations, the fact that the labor participation pool
is at its lowest point in 38 years (dismal 63%) means there isn’t as much job
creation as one would expect. The slowdown in China and its recent effect on
currencies worldwide means the U.S. is less likely to afford an interest rate
increase as that would only strengthen its currency even more in relation to
other countries, which would lead to more import activity and less domestic inflation.
World-wide oil glut is also having an international deflationary effect on
prices world-wide, especially transportation costs. Lastly, China has been
burning through US reserves in defense of the Yuan, ~$100 B in August, which can
in of itself have serious implications on core paper yields.
For us real estate guys, we may
still have a few more months to get that refi done we’ve been holding off on….but
don’t wait too long :)