A relatively weak first quarter may convince the Fed to push the rate hike to September. June is too soon because the second quarter results will not be available, and December is too late because it is over the critical holiday shopping season.
The Fed Open Market Committee (FOMC) has three more meetings this year that are followed by a press conference – June, September and December. Due to the importance of the initial Fed rate hike, it’s highly likely that the first move will occur during one of these meetings.
In the March 18 FOMC meeting, the votes were almost evenly split between an initial rate hike in June and September. However, in the March FOMC meeting the committee did not have the March disappointing job report, which means that more members of the committee will push for a September initial hike in order to better evaluate the employment situation. A December hike is not very likely because it is too late in the year and is right over the holidays' season.
Lately, consumers have been exhibiting signs of financial nervousness about the economic recovery. The April Money Anxiety Index is flat at 65.7, indicating that the level of financial anxiety among consumers is not improving as evident from their spending level. February personal consumption expenditures increased by only 0.1 percent in nominal terms, which shows that consumers are holding back on spending.
The Money Anxiety Index measures the level of consumers’ financial worry and stress based on their spending and savings pattern. Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s. The Money Anxiety Index is highly predictive. It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.
Dr. Dan Geller is a financial behavior scientist exploring the link between the level of financial anxiety and the savings and spending habits of consumers. In his book, Money Anxiety, Dr. Geller uncovers the mystery of the financial mind, explaining why we hate to lose more than we love to win and why we spend when safe and save when scared.