The Fed would be crazy to raise interest rates right now

On Wednesday, the Federal Reserve will announce whether or not it will raise interest rates. I believe that raising rates would be an irrational move and nothing more than an attempt to prop up a weakening economy.

We are in no economic condition to raise rates. The inflation rate was last reported at 0.9 percent, still far below the Fed's 2 percent annual target. In addition, overall economic growth has slowed, as just earlier this month the IMF cut the 2016 Global Economic Growth Outlook 0.2 percent from its projection issued in January. The economy is definitely falling short of the Fed's growth expectation.

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I thought it was a huge mistake to raise interest rates back in December. Our economy didn't warrant the pressure, we saw the woeful repercussions of that raise and we are still struggling. While some reports show growth in certain sectors, scraps of positive news do not form a robust tapestry of strong indicators.

The U.S. equity markets have only recently rallied because of central bank intervention and short covering. If world economies were truly strong, international central banks would not be enacting the broad range of quantitative easing measures and experimenting with negative interest rates.

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Negative interest rates have been variously implemented in Denmark, Switzerland, Sweden, the euro zone and Japan. These nations believed that rates "less than zero" would spur their sluggish economies. But the bottom line is that negative interest rates have not worked. For example, when Japan went to negative interest rates, their stock market dropped over 1,000 points.

Recently, the European Central Bank (ECB) decided to leave their interest rates unchanged. ECB President Mario Draghi expects inflation to remain low. This could be a distress beacon that the European economy is in dire shape. As a direct result of the amount of quantitative easing and stimulus enacted by the ECB, the European economy should be gaining positive traction and inflation should be rising.

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U.S. corporate earnings may be coming in better than expected, yet we are seeing significant declines in revenues. This is not a good indicator for the health of Corporate America. Companies hoarding cash and cutting costs is a sign of slowing economic activity which will later become evident in the U.S. economy.

The Federal Reserve will eventually run out of bullets and be unable to continue propping up the U.S. equity markets. My belief is that we will continue to see significant economic slowdown, but no recession in 2016. There is little economic growth, thus raising interest rates is definitely not the way to boost the economy and pull us out of this downward spiral. The fact that it is an election year will help maintain the economy at least through November. However, if we do see any additional interest rates hikes by the Fed it would most likely be after the presidential election.

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Commentary by Stephen Kalayjian, author of The Kalayjian Report and chief market strategist of KnowVera. During his career, he has traded nearly two billion shares in the equity markets. He also developed Pattern Recognition 101, a unique online proprietary video training course that teaches traders/investors of all skill levels how to trade the markets effectively. Follow him on Twitter @stevekalayjian.

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