3 Reasons Why Interest Rates Aren't Going Up
Sarhan Capital CEO Adam Sarhan said that he does not see how the Federal Reserve "could justify" raising rates this year given the fact that the central bank is data dependent.
"Why would the Fed possibly raise rates in September?" he asked. "I don't see one data point out there that suggests that the Fed needs to raise rates."
Sarhan pointed to three factors that suggest the Fed will not raise rates: (1) slow GDP growth; (2) the market does not expect future GDP growth to tick higher; and (3) global economic growth is slowing as well.
Slow GDP Growth
Recent GDP growth has been slow. On the first read, Q1 GDP was negative and the GDP "missed estimates" in the second quarter, Sarhan said. Then, the government redefined the way it calculated GDP, bringing the Q1 number higher to show a slight gain. Sarhan didn't mince words, saying that the government "artificially raised" GDP using "funny math."
Not Ticking Higher
Sarhan pointed to the iShares Dow Jones Transport. Avg. (NYSE: IYT), which has declined 7.9 percent year-to-date. Sarhan said that when there's a group "as important" as the transportation sector that is not only lagging but in a correction, it "completely contradicts the narrative that the economy will improve in the second half of the year."
Global Growth Also Slowing
The final "negative divergence" is that nearly "every single major commodity in the world" has declined in price in the last 12 months. This plays into a slowdown in China, which is an export-based economy.
"I don't see one data point out there that suggests that the Fed needs to raise rates," Sarhan said. Growth is slow and "deflation is more of a threat than inflation," bringing into question whether conditions for either of the Fed's dual mandates would be met. If the Fed were to move, it would "boggle" his mind, Sarhan concluded.
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