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Tags: Fed | Interest Rates | Presidential Primaries | Economy

Fed Should Delay Raising Interest Rates Until After Presidential Primaries

Fed Should Delay Raising Interest Rates Until After Presidential Primaries

Peter Morici By Tuesday, 08 March 2016 07:43 AM EST Current | Bio | Archive

The Federal Reserve should delay further raising interest rates until after the major party presidential nominees emerge this summer.

GDP growth was only 1 percent in the fourth quarter, and the economy came perilously close to heading south this winter.

Employers added 242,000 positions in February but 304,000 more Americans reported working part time by choice and average wages fell. Higher paying jobs in manufacturing, mining and the oil patch continued to disappear.

Americans opting out of full-time employment and sinking pay hardly paints a picture of economic health.

Troubles in China, Japan and Europe have pushed up the value of the dollar. In 2015, a surge of cheap imports, depressed sales of U.S. capital goods and the like abroad, and the multiplier effects on domestic spending and investment cut GDP growth by about one third. The drag imposed by a strong dollar on growth is not likely to relent until at least this summer.

Whatever the shortcomings of President Barack Obama’s economic policies, businesses have adjusted plans to his regime, but the populist revolt led by Donald Trump and Bernie Sanders is making them skittish about more changes for the worse.

Hillary Clinton, the Democrat most likely to become president, has countered Sanders’ redistributionist policies and  punitive agenda toward business by promising voters more free stuff too — such as extended Obamacare benefits and free college tuition — and to penalize American companies that relocate production abroad, don’t “invest in employees” or welcome unions.

Thanks to Obama’s expansion in the earned income tax credit, Medicaid, food stamps and the like, families with children earning between $20,000 and $50,000 a year face a 50 to 80 marginal tax rate — from higher payroll and income taxes and lost government benefits — when a parent returns to work or goes from part-time to full time employment. 

Obama has created a welfare dependency trap, and Clinton promises to make its chains on the working poor even heavier.

U.S. corporate taxes are near the highest among industrialized countries, and trying to keep businesses like Nabisco and Carrier from leaving for Mexico may break some short-term job losses, but such restrictions will surely discourage new investment in U.S. locations by both American and foreign multinationals.

Moreover, punitive measures for firms that don’t invest in employees or welcome unions can easily be abused by selective and vindictive enforcement — much as the IRS targeted conservative groups and private individuals that contribute to them.

It’s no accident that in the wake of the financial crisis Republican leaning CEOs in the failed auto sector were ousted when their firms took government aid while Democratic leaning banking executives in New York kept their jobs.

An awful lot of what is new and innovative can’t be blocked from leaving America through any means, and look for the drug, technology and creative industries to increasingly locate in Ireland, the UK and even Mexico.

Simply, making America more like France will give Americans French growth (not much) and French unemployment (an awful lot).

On the Republican side, polls indicate Donald Trump if nominated, can’t beat Clinton but Ted Cruz is another story. He promises to repeal Obamacare and every Obama executive order that circumvented congress. All that may be necessary but highly disruptive.

Looking at it all, no wonder business investment fell the second half of 2015 and shows no sign of significant recovery.

Whether Clinton or Cruz takes over in January 2017, both can be expected to climb down from campaign promises and recognize any president gets more with sugar than vinegar when dealing with business.

When the party nominees emerge this summer, a more realistic perspective on what the winner is likely to actually do once in office will emerge.

For the Fed, it would just better to let presidential politics work out, at least until summer, before hiking interest rates.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1

To read more from Morici, CLICK HERE NOW.

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The Federal Reserve should delay further raising interest rates until after the major party presidential nominees emerge this summer.
Fed, Interest Rates, Presidential Primaries, Economy
Tuesday, 08 March 2016 07:43 AM
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