401kRollover Blog

US stock markets have been showing further losses, allegedly over concerns about the possibility of a Federal Reserve rate hike this month. According to Koen de Leus from KBC, who spoke to the BBC, said “China is the catalyst for stock market selloffs, but the real reason …is the nervousness about the first US rate hike.” Analysts have been split on when exactly a rate hike will happen since March, when Federal Reserve Chair Janet Yellen made comments which appeared to indicate the increase would happen this year. With US jobs figures released this week showing wage growth and a relatively low unemployment rate of 5.1%, a rates increase at the next Fed meeting on September 16-17 is looking more likely. Whether the country is ready or not is a different question.

Despite the surface-level good news the August job figures appear to represent, it’s not such a rosy picture when you look closer. While the unemployment rate is low, the proportion of the population in work is down more than three percentage points from pre-Recession levels. This suggests that people, especially in the 25-34 range, are “opting out” of employment but not registering as unemployed. There is also the question of inflation. The Fed has said it wants to avoid waiting too long to raise rates to avoid inflation problems. The bank has an official goal of 2% inflation, but has averaged 1.5 percent over the past seven years. This means there is some wiggle room – inflation could go to 3% without affecting that average, for example.

The stock market dip seen in recent days suggests the market does not think a rate increase is a good idea, although it does also reflect continuing concerns about China and its effect on the US economy. This exact same situation is in fact another reason why many analysts think a rates hike should be delayed until December.

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