As for what this means for the timing of a Federal Reserve (Fed) rate hike, data about the U.S. economy on balance exceed the reasonable measures a “data dependent” Fed might require to move off of “emergency interest rate” levels, as BlackRock’s proprietary “Yellen Index” of labor market/economic conditions shows in the chart below.
That said, we may not see a rate rise from the Fed in September, given muted wage growth and risks to U.S. growth out of Europe and China. The Fed is likely to hold off until later this year, especially if we see greater than anticipated stress on the U.S. economy from Chinese growth acceleration, and or if the situation in Greece drags down European growth, leading to more European Central Bank (ECB) stimulus and a strengthening dollar.
Source: BlackRock research
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, Co-head of Americas Fixed Income, and is a regular contributor to The Blog.