business & profressional >> economy

Will the Fed Raise
Interest Rates in
September?

T

he Fed appears to be waiting for
stronger evidence of economic
growth before announcing a time-
table for the upcoming interest
rate hikes. At the conclusion of
its recent two-day meeting on
July 29, the Federal Open Market
Committee (FOMC) voted to
keep the federal funds target rate
unchanged.
The Fed upgraded its assess-
ment of current U.S. economic
activity, noting that the labor
market continued to improve
and underutilization of labor
resources has diminished, while
growth in household spending
has been moderate and activity
in the housing market showed additional
improvement.
Since the meeting, economic data has
shown advancement. Household spending
has increased and, now that households
have solidified their personal finances, con-
sumer spending should continue to expand.
The housing market has shown more
growth driven by gains in household forma-
tion, and light vehicle sales remain robust.
The soft sectors of the U.S. economy are
business spending on equipment related to
the downshift in energy prices and exports,
which are being impacted by the strong dol-
lar and with weaker-than-expected growth
in key global economies such as Brazil and
China.
In spite of a split-level economy and glob-
al financial turbulence, the case is building
for beginning the normalization of interest
rates. Expect a quarter-point increase at
the meetings scheduled Sept. 16-17 and
Dec. 15-16. If these two raises happen,
the federal funds rate will increase to 0.5
percent from zero, where it has been since
December 2008. The Fed last raised interest
rates in 2006.
The emergency zero interest rate is no
longer required six years after the Great
Recession ended. The most-effective imme-
diate policies to generate faster economic
growth are tax reform and infrastructure
spending, not a continuation of emergency-
level interest rates.
Keeping zero interest rates too long typi-
cally results in excessive risk-taking behav-
ior as investors look for higher-yielding
investments in an exceptionally low-rate
environment. Evidence of this can be seen
in the large run-ups in high-yield debt issu-
ance, greater subprime lending activity, par-
ticularly in the auto market, and corporate
borrowing for buying back stock, dividend

Michigan Israel
Business Bridge
To Honor Two At Dinner

increases and for mergers. The longer the
Fed waits to increase interest rates from
the zero emergency level, the greater the
risk that credit sectors become
overheated.
A 0.5 percent federal funds
rate will still be highly accom-
modative. It does not mean the
end of easy credit by the central
bank. Further, the Fed continues
to maintain its existing policy of
reinvesting principal payments
from its holdings of Treasury
and mortgage-backed securities,
keeping the size of its balance
sheet at about $4.5 trillion. The
Fed's balance sheet was about $1
trillion in 2008. The increase in
the Fed's balance sheet is due to its quanti-
tative easing policy.
The criteria to begin raising the target
rate for the federal funds rate are further
improvement in the labor market and rea-
sonable confidence that inflation will move
back to its 2 percent objective over the
medium term.
Further improvement in the labor market
can be seen in the following ways:
• The three-month average change in
total non-farm jobs exceeds 225,000, and
that job growth is accelerating. The July fig-
ure is 235,000, up from 226,000 in June.
• The labor force participation rate sta-
bilizes and begins to increase, which shows
that discouraged workers are entering the
labor market. The July rate is 62.6 percent,
the same as in June.
• Average weekly earnings continue to
expand; it was $864.65 in July, an increase
of 0.5 percent from June.
Reasonable confidence that inflation will
move back to its 2 percent objective is mea-
sured by increases in the Consumer Price
Index for all items, less food and energy,
rising by at least 1.7 percent over the past
12 months. It rose by 1.8 percent in June
over the past 12 months. Stability in the
dollar and energy prices will also help infla-
tion move toward the 2 percent objective.
The July jobs report showed further
improvement in the labor market. An
improving economy and labor market in
August will keep expectations high that at
least one rate hike will occur later this year,
most likely in September.

T

he Michigan Israel
Neurology at the University
Business Bridge
of Michigan, has made it
(MIBB) will hold its
her mission to use scientific
2015 Ambassador Awards
discoveries to understand
Dinner on Wednesday,
and cure human diseases.
Oct. 14, at the Reserve in
In January 2008, Feldman
Birmingham.
was named the first director
MIBB will be presenting
of the A. Alfred Taubman
two awards during the din-
Medical Research Institute.
ner.
In her own work, Feldman
The Bridge Builder Award
Jeff Owe ns
is on the forefront of applying
is being presented to Delphi
stem cell research to human
Automotive in honor of its
disease. Most notably she is
continued work with Israeli
the principal investigator of
startups and established
the first clinical trial of intra-
companies. The award will
spinal transplantation of stem
be accepted by Jeff Owens,
cells in patients with ALS,
Delphi's chief technology
which received FDA approval
officer and executive vice
in April 2013 to proceed to
president, who is responsible
Phase 2. Feldman has been
for the enterprise informa-
working with Dr. Benjamin
tion technology function and
Reubinoff, director of the
Delphi's global engineering
Human Embryonic Stem Cell
Dr. Eva Fe Idman
organization, which includes
Research Center at Hadassah
more than 19,000 technologists located
Medical Center in Jerusalem on stem
in 15 major tech centers. He leads the
cell research since 2009.
company's innovation strategies while
"We are honored and thrilled to be
driving advanced technologies support-
presenting awards to Delphi and Dr.
ing the company's global megatrends of
Feldman:' said MIBB President Hannan
safe, green and connected.
Lis. "It is our pleasure to have them
The Chuck Newman Impact Award,
join with last year's awardees, General
named for the organization's co-founder,
Dynamics Land Systems and Chuck
will be presented to Dr. Eva L. Feldman.
Newman, in their support of Michigan-
Throughout her career, Eva Feldman,
Israel collaborations:'
the Russell N. DeJong Professor of

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Jonathan Silberman is a professor of econom-

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