There have been several theories floating around for why the Federal Reserve won’t raise rates in September: oil at $40 a barrel means there’s no inflation; the volatility in global markets; falling commodity prices suggest a global slowdown is a risk that might become more likely if China’s growth falters.
I find none of these especially persuasive. The latest excuse for Fed inaction making the rounds is the August employment situation report, out on Sept. 4. August data can be misleading, with seasonal adjustments caused by teachers returning to school and temporary automaker layoffs ending. We could see a weak monthly number and that would put the Fed on hold until at least December, according to various prognosticators.
I don’t know if the Fed will raise rates in September — I say 80 percent chance this year and even money for September. But nonfarm payrolls won’t be the determining factor, for many reasons.
First, is that people get taken in by the recency effect. The tendency to overemphasize the latest number in a data series is well known to statisticians, including those at the Fed. If the August number is an outlier, that variability is understood. Because 11 million jobs have been created since the Great Recession ended in June 2009, one month will not be extrapolated to infinity.
Second . . .
Continues here: Weak Reasons Fed Will Wait on Rates