Why the Fed Will Have to Raise Rates Later this Year

The Fed didn't raise rates today but it will have to before the end of the year. The EU will make sure of that.

The Fed's decision not to raise rates today was just a stalling tactic to buy time for a weak economy.  But time may run out quicker than the Fed expected.  While the Fed kept rates steady at 2%, the Financial Times reported that:

"Jean-Claude Trichet, the president of the European Central Bank, earlier expressed fresh concern about inflation and wage growth, strengthening expectations that the ECB would raise its main rate by 0.25 percentage points next week to 4.25 per cent."

If the Fed keeps rates steady at 2% but the ECB raises rates to 4.25% the dollar will erode further, weakening the purchasing power of Americans and further stoking inflation.  At some point, the debasement of the dollar has got to end and the rise in oil and commodity prices is one of the hammers that will do so.

Look for a rate increase or two in the coming months.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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