The move raises critical questions about the global economy for 2016, already slowing significantly since 2014. Further global slowdown is now almost certain in 2016 – with global oil prices now in the mid-US$35 range and projected to go lower, with commodity prices globally still deflating, with Europe’s economy continuing barely growing and Japan’s in yet another recession, and with major emerging market economies experiencing spreading economic instability with collapsing currencies, capital flight, slowing exports, rising import inflation, and growing political unrest.
The rate hike also means the U.S. economy, already not doing all that well, may slow further in 2016 as well, contrary to what U.S. media and ‘spin doctor’ economists are claiming. Ignored in the U.S. press is the fact that, in the past four years in a row, every winter quarter the U.S. economy collapsed to near zero or negative in GDP. Will that now happen again – a fifth time – this coming January-March 2016 as a result of the Fed rate rise? Quite possibly.
The U.S. Fed reduced short term rates to nearly zero in 2008-09. The excuse was the rates were necessary to generate economic recovery. But even recent Fed studies have concluded the zero rates since 2008 have had minimal effect on the U.S. real economy.