Global Economies Will Dictate Rate Hike Timing

The Federal Reserve spent this year winding down its $85 billion a month QE stimulus program. With that task completed, the hot topic of analysts, and concern of markets, is how soon the Fed will take the next step in moving back toward normal monetary policies. That is, when will it begin raising interest rates from the current near-zero levels back toward normal?
The Fed says only that ‘It likely will be appropriate to maintain the 0 to 0.25% target range for a considerable time following the end of the QE asset purchase program.’ In its statement after its last FOMC meeting, it added that, ‘If progress toward our employment and inflation objectives take place more quickly than is currently expected, the rate increases could begin sooner than currently anticipated. Conversely, if progress proves slower than expected, then rate increases are likely to occur later than currently anticipated.’
That has analysts closely watching employment and inflation reports, including factory orders and industrial production that might provide clues for the employment picture.
[Hear: Michael Shedlock: Why Hyperinflationists (and Deflationists) Got It Wrong] I suggest that global economies and the markets of America’s largest trading partners are much more important areas to watch. The undercurrents in those areas are more likely to dictate when the Fed will have enough confidence in the U. S. economy to begin raising rates.
So far this year global undercurrents have been undertows, potentially beginning to tug at the anemic U. S. economy.

This post was published at FinancialSense on 11/21/2014.