Is The Fed’s Indecision Hurting Confidence In The United States?

Throughout the entire year, we've heard from the Federal Reserve that they are likely to raise rates relatively soon. While I was under the impression that a rate hike would be bad for the economy, I had a conversation with a friend about it yesterday; and I have to say, he made some very valid points. His entire argument was that at this point, the fact that the Federal Reserve has been so indecisive is actually hurting the United States economy more than helping it. So today, we'll take a look at the situation from both sides of the argument to determine whether or not the Fed is actually causing harm to the US economy as well as the US market. So, let's get right to it…

Why I Was Under The Impression That A Rate Hike Would Actually Harm The US Economy

To understand how a rate hike could hurt the economy, it's important to understand why the rates were reduced in the first place. Back in the depths of the 2008-2009 financial crisis, the Fed reduced the interest rate in an attempt to stimulate the economy. In doing so, consumers would spend less on interest and have more money to spend on consumer products. When this happened, we all knew that it wouldn't last forever. In fact, the Fed would only keep rates that low as long as it was needed.

Fast forward nearly 7 years. There are experts on both sides of the fence. Personally, I believe that with the struggling jobs report from August as well as the declining consumer price index, a rate hike would put too much unnecessary pressure on the country's economy; pressure that could lead to the next recession.

It's also important to take the worldwide economy into account. The reality is that the worldwide economy is very intertwined. Therefore, anything that affects the US economy is likely to have an affect on the rest of the world as well. With China, Europe and several other countries struggling, I wasn't sure that the world would be able to take such a hit. Then, my friend came in with his very valid argument…

Is The Federal Reserve Hurting The Economy By Keeping Rates Low?

Low rates signify a crisis. While no expert believes that the US is currently in the state of economic crisis, the Federal Reserve may be changing these opinions by keeping rates low. My friend explained that you have to think about this in a couple of ways…

• Consumer Sentiment – First and foremost, if consumers are consistently told that the economy isn't healthy enough for higher rates, they're going to start believing it. This becomes a self fulfilling prophecy. Because consumers lose faith in the economy, they stop spending and consumer prices go down.
• Investing – My friend also explained that at this point, low rates are actually putting pressure on the markets. Investors are consistently hearing from the Federal Reserve that they are not ready to increase interest rates. This means to the investor that we are still in crisis mode; and starts to eat at investor sentiment. Ultimately, this could cause further declines in the market. Not to mention, since the beginning of the year, investors have been preparing for a rate hike; one that hasn't happened yet. These preparations are also driving US markets down.

What This All Means For The Binary Options Trader

While I didn't think I would in the beginning of the conversation, I have to say that I agree with my friend here. At this point, keeping low rates may be harming sentiment. Under this assumption, we would have to imagine that markets are only going to continue on the downward trend that we've seen. Therefore, binary options traders should be watching US markets for put option opportunities; at least until the Federal Reserve does make the decision to make a move.