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Experts Say: 2017-07-21

Lance Roberts - Chief investment strategist at Clarity Financial

Fed’s hike amid slow growth could lead to recession

Lance Roberts, chief investment strategist at Clarity Financial, makes the case that raising interest rates off ultralow levels during a period of slow economic growth triggers recession in the following three to nine months.

The Federal Reserve lifted its funds target range by 25bp to 0.75%-1.00% at its policy meeting on March 14-15.

At the same time, the US economy grew by only 1.9% on a yearly basis in the fourth quarter of 2016. In 2016, the growth came in at 1.6% after 2.6% in 2015.

“Outside of inflated asset prices, there is little evidence of real economic growth, as witnessed by an average annual GDP growth rate of just 1.3% since 2008, which by the way is the lowest in history since…well, ever,” Roberts wrote in his blog.

In its policy statement, the FOMC said it did not see any significant changes in economic conditions, only a slight improvement.

Lance Roberts expressed concerns over downside risks for the stock market as the result of the Fed's lifting of interest rates. The hike would spark higher borrowing costs for corporations and individuals, which in turn would trigger higher costs to buy a house or car and elevated costs of companies repurchasing their own stock, thus aggravating the lackluster growth.

Di Publish: 2017-07-21
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