As we look around at all the craziness in the world today, a common question is: “WWJD?†No, I’m not referring to the rubber bracelets from early 2000s. Instead, I’m talking about economics, where the appropriate question is: “What would Janet do?†That is, Federal Reserve Chair, Janet Yellen.
Greece is broke, and so is Puerto Rico. Illinois can’t pass a budget, and Chicago is bumping up against pension payments it can’t possibly make.
The U.S. economy is creating some jobs, but wages remain sluggish at best. That casts a cloud over the much-hyped-but-not-quite-here-yet boom in housing millennials will eventually lead. Right now they can hardly scrape together enough dough for a 3% down payment, much less earn enough to qualify for a conforming loan. It’ll be a long time before they rush headlong into the housing market.
So as we get closer to the Fed’s September meeting, our current situation has a lot of people wondering what in the world Janet and Company will do. Personally, I’m not too concerned.
Don’t get me wrong. It’s not that I think everything is fine. I’m just as concerned about our economic plight – or more so – than most people I know. But I think the hype around the Fed raising rates is overdone.
Eventually the Fed will announce that its target for the Fed Funds Rate – the rate at which banks lend to each other overnight – is moving up from a range of 0% to 0.25%, to simply 0.25%.
This will affect hedge funds, pension funds, insurance companies, and other institutions that use short-term leverage to increase their buying power. But aside from slightly increasing what banks pay on deposits, the move won’t mean much to everyday people. Most of us don’t live in that rarified air.
Closer to home is what happens with longer-term interest rates, like those on 5-year and 30-year Treasury bonds – and even there I think very little will happen.
