If you haven’t noticed, things are going pretty well in the United States from an economic standpoint. We say that jokingly, of course, as for several months we’ve covered the record low unemployment numbers, the resurgence in U.S. manufacturing, the surging stock market and more. But, even throughout these strong economic times, there’s been one potential threat sitting in the back of several economists’ minds.
You’ve likely even heard President Donald Trump decry this threat at times recently. That threat we’re talking about is the Federal Reserve.
Specifically, the Federal Reserve, or the Fed, has been raising rates – and all indications are that additional rate hikes are coming from now through 2020. The rate hikes have already led to a cooling down on the housing market front (seriously, the seller’s market that once defined the market is a bit grim right now, and it has a lot to do with increased interest rates), and some analysts believe that rates could rise by an additional 3.5 percent by 2020.
In the wake of the most recent rate hike, President Trump has gone on to state that the Fed is the greatest threat to the surging economy. Analysts seem to agree, as strategists at Rabobank have gone as far as to say that the Fed will ultimately push the U.S. into a recession. This post will take a closer look at the core duties of the Fed and what the rate hikes could spell moving forward.
The Federal Reserve 101: What is it?
The Fed is the central banking system of the U.S. Established in 1913. Its goal, simply put, is to maintain a safe, flexible and stable financial system. Certainly, sending the nation spiraling into a financial crisis is not one of the Fed’s mission statements, yet many people have directed their ire at the Fed for the Great Depression, the crash in the mid-1970s, the steep inflation that occurred thereafter and then recessions in in the early 80s and late 2000s.
Will the Fed Help Usher in Another Recession?
As we established earlier, that’s the fear – both in Washington D.C., and at analyst firms around the country. Yet, most expect the Fed to continue on its planned trajectory of increasing interest rates through 2020, at least until there’s the first sign of an economic recession. Analysts are also quick to point out that the next U.S. recession – whenever it comes – is likely to be a mild one as far as recessions go. What this means is that while it won’t be welcomed, the long-term impact will be much less severe than the “Great Recession” experienced in the late 2000s.
Some analysts also believe that the Fed is unable to accurately predict a recession, basing this opinion largely on the backward looking data that it works with, human error and its lack of control over fiscal policy.
Yet, there are other factors that the market will contend with aside from the Fed that may play a significant role in the near-term future of the U.S. economy. Things like the rising U.S. deficit, the increasingly hostile trade war with China and a global market that is beginning to plateau are other factors to keep an eye on. If you’re an investor, we’d also advise you to place growth over name. In other words, stick to investing in various sectors and industries, and not necessarily in the tried and true companies that you’re accustomed to.
Regards,
Ethan Warrick
Editor
Wealth Authority
