4 Reasons the Fed Won’t Raise Interest Rates in June
It is no surprise that the Fed didn’t take action on interest rates at the April Federal Open Market Committee meeting. The question of interest to the market is whether the Federal Reserve has revealed some clear signal in its statement about the timing of the future rate increase. Even though the Fed did not change its forward guidance on rate increases from the March statement, we can discern what the Fed has on its plate. Four aspects of the economy stand out:
Related: Bernanke Was Right—Interest Rates Aren’t Going Anywhere
- The latest GDP data show worse-than-expected growth at an annualized 0.2 percent during the first quarter of 2015, compared to 2.2 percent in the last quarter of 2014.
- The strong U.S. dollar has continued to weigh on exports. Net exports in the first quarter stayed unchanged (0.0 percent growth) year-over-year, compared with 18.6 percent growth in the fourth quarter of 2014.
- Inflation has continued to stay way below the central bank’s 2 percent target. The price index for personal consumption expenditure (PCE), the measure of inflation preferred by the Fed, showed a 0.3 percent year-over-year increase in the first quarter, much lower than the growth rate of 1.1 percent in the fourth quarter of last year. Core PCE inflation, which excludes volatile prices of food and energy, reached 1.3 percent, compared with 1.4 percent in the last quarter.
- The improvements in the labor market, the other mandate of the Federal Reserve besides inflation, also slowed. Only 126,000 employees were added to nonfarm payrolls in March, compared to 264,000 in February and 201,000 in January.
Related: Fed’s Downgrade of Economic Outlooks Signals Later Rates Lift-Off
In all, the U.S. economy is growing more slowly than anticipated with some headwinds that may last for a while, such as the strong dollar. Both measures of the Fed’s dual mandate, price stability and maximum employment, remain below the Fed’s target. Normally this would call for an accommodative monetary policy, postponing the rate increases until later in the year. Rather than starting rate increases at the June FOMC meeting, the liftoff in September instead is more likely.
This story originally appeared at the American Institute for Economic Research.
Maybe Don’t Count Out Obamacare Repeal Just Yet
Sen. Bill Cassidy (R-LA) told reporters on Friday that he’s getting close to securing enough votes to pass the last-ditch ACA repeal and replacement bill he’s put forth with Sens. Lindsey Graham (R-SC), Dean Heller (R-NV) and Ron Johnson (R-WI).
“I am pretty confident we’ll get there on the Republican side,” Cassidy said. “We’re probably at 48-49 [votes] and talking to two or three more.” And Senate Majority Leader Mitch McConnell has asked the Congressional Budget Office to estimate the effects of the Cassidy-Graham bill, which would speed up the scoring process.
Of course, those last two or three votes have been the challenge for the GOP all along, and they may not be any easier to round up this time. Sen. Rand Paul (R-KY), who voted for a prior repeal bill, said Friday that he won't support this one. Plus, opponents are already stepping up their criticisms about the effects of the bill. And time is running out: Cassidy and his colleagues only have until September 30 to pass the bill this year under a process that would require only 50 supporters in the Senate. So while the Obamacare repeal may still have life, it remains a longshot.
Orrin Hatch Signals Just How Complicated Tax Reform Will Be
GOP leaders said Wednesday that they'd issue a more detailed framework of their tax overhaul the week of September 25. But while lawmakers are eager to get more details about the outline being hashed out by the so-called Big Six team of negotiators, Republicans are still divided on key elements of the plan — going from blueprint to bill is bound to be a contentious process.
In his opening remarks at a Senate Finance Committee hearing today on individual tax reform, Sen. Orrin Hatch (R-UT) said the plan from the Big Six — of which he is one — "will not dictate the direction" the tax-writing committee takes. "Anyone with any experience with the Senate Finance Committee knows that we are not anyone’s rubber stamp," he said. "If a bill – particularly on something as consequential as tax reform – is going to pass in this committee, the members of the committee will have to be involved in putting it together."
Oh, and remember: Republicans also need to agree on a budget before they can push through tax reform without Democratic votes.
Aging Baby Boomers Drive Down the Uninsured Rate
About 10,000 boomers turn 65 every day, becoming eligible for Medicare on their birthdays. The Census Bureau says that the sheer number of boomers entering Medicare is affecting the uninsured rate for the whole population. That rate fell to 8.8 percent in 2016, down from 9.1 percent a year earlier, with most of the decline driven by the aging of the post-war generation. (Wall Street Journal)
Social Security Kept 26.1 Million Out of Poverty Last Year
Social Security kept more than 26 million people out of poverty last year, according to a new report from the Census Bureau. Refundable tax credits such as the one for earned income kept 8.2 million people out of poverty, while food stamps lifted 3.6 million above the line, housing subsidies reduced the number of poor people by 3.1 million and unemployment insurance kept 680,000 out of poverty. Overall, the Census Bureau reported, the poverty rate was 12.7 percent, while a more sophisticated alternative measure that factors in government programs for low-income families put the rate at 13.9 percent, down from 14.5 percent in 2015.
Read more about the new Census Bureau numbers here.
Tax Reform on Menu for Trump's Dinner with Dems
President Trump is set to host three moderate Democratic senators for dinner on Tuesday as part of his push for tax reform, Politico reports. The Democrats on the guest list: Sens. Joe Manchin of West Virginia, Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana, all of whom are up for reelection in 2018 in states Trump won last November. Vice President Mike Pence and GOP Sens. Orrin Hatch of Utah, John Thune of South Dakota and Pat Toomey of Pennsylvania are also slated to attend.