This week the media will be focused on the Fed raising interest rates. We believe the markets have already baked in an interest rate hike and has made adjustments accordingly.
Why is the Fed raising interest rates?
There are several reasons the Fed is raising interest rates. Manufacturing is in a great recovery right now with factory orders increasing 6 out of the last 7 months. That’s important because manufacturing is 12% of our economy.
Regulations are preventing an even better manufacturing recovery
The National Association of Manufactures reported that 21% of manufacturers cost line goes towards regulations alone. If you are selling a pen for $10, $2.10 of that cost is going towards regulations which does nothing to make that pen any better for the consumer or production easier for the manufacturer. If we could lower regulations, it would make the recovery in manufacturing even better.
Confidence rises as America goes to work
The number of Americans working hit an all time high in Friday’s job report. It estimated that 152.5 million people were working in the United States. The result is a rise in confidence in the economy.
Falling gas prices are coming soon
Over the last week oil prices were down 9.1%. That hasn’t made it to the gas pump yet but we should see it soon. This will help consumer confidence, consumer spending, jobs, and help the economy grow.
US is now the marginal oil producer
Also, over the last two weeks, Libyan oil production dropped 11%. Normally that would spike gas prices but it hasn’t because we see the US as the marginal oil producer. This most likely scared OPEC as they cut their oil production yet prices still dropped. Prices dropped because the US increased their oil production, making oil rig counts go higher than in 2015. Because we are producing more, we can produce it cheeper.
Confidence levels rise across the board
We are seeing confidence levels rise across the board. The Fed is looking at this data as well and we think there is a good chance that the Fed will raise interest rates this week. We shall see. Thank you for your comments and questions. Please keep sending them.
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Greg Powell, CIMA
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Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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