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Tuesday Takeaway
Posted on June 16, 2015
American Association of Individual Investors’ most recent poll indicated investors aren’t feeling very optimistic:
“Greece is seeking a cash-for-reform deal, to avoid defaulting on a €1.5bn debt repayment to the IMF… The EU and IMF are unhappy with the extent of economic reforms the Athens government is offering in exchange for the release of a final €7.2bn (£5.3bn) in bailout funds. Their bailout deal with Greece runs out at the end of June.”
If negotiations fail, Greece may be forced to leave the Euro which the BBC said could make the country a pariah in international markets. U.S. stocks finished the week higher despite losing value when Greek debt negotiations stalled.“The Fed has kept short-term interest rates pinned near zero since December 2008 to support the U.S. economy through a financial crisis, recession and slow recovery. Officials have signaled they expect to begin raising rates sometime this year. The central bankers say [they] want to see continued improvement in the job market, and they want to be “reasonably confident” that too-low inflation will soon move back toward their 2 percent annual target.”
Employment has been moving in the right direction and Fed estimates suggest inflation may reach 1.8 percent during 2016, so what’s the hold up? Some Fed officials are concerned the American economy has lost momentum, and they’re not alone. When the Journal asked analysts to estimate gross domestic product (GDP) growth for 2015, 2016, and 2017, their June estimate was 2.1 percent. That’s considerably lower than their March estimate of 2.9 percent. The Fed’s March estimate of GDP growth in 2015 was 2.5 percent. A revised June growth projection should be out this week. If expectations deteriorate, it’s possible the Fed may decide rates shouldn’t go much higher. Analysts’ estimates for the 2015 Fed funds rate declined to 0.58 percent from 0.83 percent in March indicating they believe the Fed may not raise rates as much as had previously been expected.