What Happens To The Economy If Fed Only Hikes Rates Once In The Next 2 Years?

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Posted: Mar 22, 2019 8:36 AM
What Happens To The Economy If Fed Only Hikes Rates Once In The Next 2 Years?

Source: AP Photo/Jacquelyn Martin

Well, what a difference a day makes. Initially, concerned and a tad bit confused, Wall Street came around to embracing the new Federal Reserve. The ‘Powell Fed’ might be ready to embark on a strange journey that eventually sees negative interest rates in the United States. I don’t want to get too far ahead if the Fed only sees one rate hike over the next two years.  I don’t want to get too far afield, but if the Fed only sees one rate hike over the next two years, then what happens if the economy or stock market hits a bump in the road?

That bump is probably a long way off, but the notion is food for thought. Meanwhile, the market is edging closer to major indices retesting their all-time high points, particularly the NASDAQ Composite. The NASDAQ would only need three more sessions like yesterday, when shares popped more than 100 points. This is a parabolic move that could feed on itself.. This is a parabolic move that could feed on itself, as lots of folks that missed the train leaving the station decide to chase it down the tracks.

Skills Crisis

In yesterday’s Philly Fed release, a special questionnaire revealed the depth of the skills gap. I get that many people believe this is an urban myth. However, with a record of 7.6 million job openings, employers are frustrated and are ready to try anything. That’s great news for Americans that have been hoping for a chance at the dignity of a paycheck.

Issues:

Long vacancies due to the labor shortage

1. Has your firm experienced any significant labor shortages or mismatches between labor skill requirements and labor supply?*

2019 (%)

2018 (%)

Labor shortages

73.6

63.8

Skills mismatches

66.0

69.6

Job vacancies remaining more than three months

50.9

47.8

 

2. Is your firm experiencing a labor shortage in general or in certain skills, abilities, or positions?

2019 (%)

2018 (%)

We are seeing a tightening labor market, such that it is getting harder to fill positions in general, but still possible to fill them.

47.2

35.3

Novel Solutions and better training

3. What actions has your firm taken to address skills shortages?*

2019 (%)

2018 (%)

Increased training for hired workers**

43.4

-

Partnered with educational institution to align curriculum with talent needs

41.5

34.8

Expanded recruitment outside the region

32.1

24.6

Hired less qualified workers to meet labor requirements**

30.2

-

This is serious issue, but. what a high-end problem to have. I think businesses are going to have to do more to make sure they have the workers. While it shouldn’t come down to one or the other, this is certainly a better investment than massive buybacks and higher dividends.

The operative word is “investment.”