Federal Reserve

1. The Federal Reserve’s Federal Open Market Committee’s next 3 meetings are on October 28, 2015, December 16, 2015 and January 27, 2016.

What should the FOMC do at each of those 3 meetings and why?

   From my perspective, I conceive that FOMC shouldn’t raise the federal funds rate on December 16, and It would raise rate with high probability on January 27. There are following 4 reasons to support my view.

    For starters, the annulus growth of the third-season GDP is about 1.5 percent and it is lower than the expectation. The data shows that current economic activity is expanding moderately and the economic risk are enabled to release. In this case, the FOMC should maintain the current rate to assure the expected 2015 GDP.

    Second, the inflation is anticipated to remain near its recent low level and the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and transitory effects of energy and import prices dissipate. So the FOMC would better to keep the rate unchanged until the increase of inflation get into a rational range.

    Third, although the unemployment and the underutilization of labor resources have decreased since early this year, we are still confronted with high pressure of the employment. The non-agricultural employment index will be published next week. I predict that this index would remain a low increasing rate. This means the increase of economy cannot meet the demand of employment. So it is inappropriate to raise the rate. Finally, recent global economic and financial developments face some challenges. Like Greek debt crisis, the low price of gold futures, China capital market, and so on. In this case, FOMC should certainly boost the liquidity of the USD to stimulate the development of the global economy. But compared with the release of September 17th, which mentioned that the household spending and business investment “have been increasingly moderately”, from the October 28th Fed statement, we can see the household spending ans business investment “have been increased at solid rates”, which would show that economic situation have improved further form one aspect. So in long term, I believe that the rates would be raised, probably at the beginning of next year.