The Federal Reserve is "on track" to raise interest rates this year, The WSJ reported Tuesday.
The story was co-written by Jon Hilsenrath, who's known to have deep sources at the Fed so it took on added heft.
“I think it is important to get started and to start normalizing policy,” St. Louis Fed President James Bullard told The Wall Street Journal. “Even once we start to normalize, interest rates would be extraordinarily low.”
While that's indisputable, investors would be wise take this story-- like any story -- with a grain of salt...and not just because Hilsenrath's track record of predicting Fed policy is far from flawless and forecasts of Fed tightening have proven premature every year since 2009.
Here are five reasons why the Fed won't hike rates this year:
Core CPI grew 1.6% last year, and like every other inflation statistic, is below the Fed's goal of 2%.
U.S. wage growth, which Fed chair Janet Yellen has said is of paramount importance, remains elusive.
Inflation in the European economy is at its lowest levels since EU started tracking numbers in 1997, with consumer prices turning negative in December.
The Chinese economy grew at its slowest pace since 1990 last year.
Tumbling oil prices are putting pressure on emerging economies in Brazil and Russia, most notably, and raise the risk of financial market "contagion."
Japan's ongoing economic struggles could be reason number six. Either way, if these trends keep up, don't be surprised if the narrative doesn't change from "when will the Fed raise rates" to "will the Fed do another round of QE?" as I mused here last week after lackuster U.S. retail sales data.
To be sure, the Fed may yet raise rates in 2015 and I don't think the U.S. economy necessarily "needs" rates at zero. But I am hoping the Fed will be "data dependent" in determining when and if to raise rates, rather than sticking to some artificial timetable it has set for itself.
And that is the second major concern about the WSJ story today. Not to sound like Dana Carvey's "Grumpy Old Man" of SNL fame, but...
In my day, people had to figure out what the fed funds rate was by crunching the numbers. That's the way it was and we liked it. Now, the Fed doesn't only announce when it changes rates -- the Fed holds press conferences and holds the markets hand and every Fed governor talks to the press about what he thinks the central bank should do. It's what the kids with fancy their cell phones and Insta-What's App-Snap accounts call "TMI".
Too much information. By trying to not surprise the market the Fed has gone overboard.
The risk of too much central bank "transparency" is that when financial markets think they know what a central bank will do, they tend to take on MORE risk not less. Just ask anyone who was surprised last week when the Swiss National Bank dropped its peg to the euro -- and by "anyone" I mean "everyone" because nobody saw that coming, which is why it became a financial tsunami.
My recommendation: Fed officials should go back into their ivory towers and stop talking to reporters -- unless, of course, they're interested in coming on Yahoo Finance.
Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
