Maintaining zero interest rates is creating a scenario in which containing risks "becomes virtually impossible," according to an analysis.» Read More
The Federal Reserve is scared—of lots of things, some obvious, some not so much.
Thursday's Fed decision to delay yet again the long-awaited liftoff from zero rates gave rise to still more speculation about why the U.S. central bank seems so perpetually reticent to normalize monetary policy.
There are all the usual suspects, such as low inflation, weak wage gains despite strong job growth and China plus the rest of the emerging global economy.
One reason that hasn't gotten much attention is the need for the Fed to keep rates low both for government debt and the corporations that now have $12.5 trillion in debt.
Among the prime beneficiaries of zero interest rates have been low-rated companies that have been able to borrow money at rates often in the 5 to 6 percent range.
A move to higher rates, even a small one, could have outsized impacts on those bad balance sheet companies.That puts the Fed in a bit of a Faustian bargain with issuers and holders that has become hard to break.
There's one very good reason the Federal Reserve won't vote to raise interest rates: History.
While many surveys of Wall Street experts—including one by CNBC—indicate a belief that the Federal Open Market Committee will vote Thursday in favor of a rate increase for the first time in more than nine years, futures traders are betting against it.
That alone, according to a Morgan Stanley analysis, will be enough for the Fed to wait at least one more month before liftoff.
Lessons learned in 1994 that reverberated into 1999 and 2004 will preclude a rate hike until the futures market prices one in, analysts Guneet Dhingra and Matthew Hornbach said in a note to clients.
"The Fed prefers to avoid delivering big surprises," they said.
A rate hike will come and the bull market will stumble, bond yields will climb and the economy will slip into a recession.
This we know.
What we don't know is how long all of that will take and how long it will last.
For the economy specifically, history offers little guide about timing. A recession has come as quickly as 11 months after the first rate hike and as long as 86 months.
The Federal Reserve's aggressiveness in raising rates is often, though not always, a determinant in how the economy and financial assets respond. That's why officials at the U.S. central bank have stressed so vigorously that investors should not be focused on when it starts raising rates but rather the trajectory of how long it will take to normalize.
There are, indeed, multiple variables at play. In the end, however, market participants may find that all the rate-hike fuss may have been overdone.
"The first hike from the Fed since the global financial crisis will inevitably be interpreted by some as signaling the end of the era of 'cheap money,' " Julian Jessop, chief global economist at Capital Economics, said in a note to clients. "In contrast, we do not expect the gradual return of U.S. interest rates to more normal but still low levels to be the seismic shock that many seem to fear."
That's not to say there won't be effects, however. Here's a look at how some areas of the economy could react, based on historical trends:
More Americans renounced their citizenship and terminated their long-term residency in the first three months of the year than ever before, courtesy of the crackdown in foreign tax rules.
The upsurge subsided some in the second quarter but has been ongoing since the Treasury Department and the Internal Revenue Service began aggressively enforcing tax rules for American expatriates. The crackdown on the Foreign Bank Account Report is fresh, though the law has been in existence since 1970. Under the law, U.S. taxpayers are required to file if they held one or more foreign accounts totaling more than $10,000 over the course of a year.
"Many people have been getting caught up on their U.S. tax filings and then renouncing," said Andrew Mitchel, an international tax lawyer who analyzes Treasury Department data.
For a U.S. citizen or resident alien, the rules for filing income, estate and gift tax returns and paying estimated taxes are generally the same whether one is in the country or abroad. A person's worldwide income is subject to U.S. income tax, regardless of where he or she resides.
The Foreign Account Tax Compliance Act is intended to ensure that the Internal Revenue Service obtains information on accounts held abroad by U.S. taxpayers at foreign financial institutions.
If there was any doubt beforehand, a key economic number Friday finally may have taken September off the table for an interest rate hike.
Consumer sentiment tumbled in September, with a reading of 85.7 in the latest University of Michigan monthly survey.
While that number often garners a fair mount of attention on Wall Street and can move the market, it takes on added importance because of recent comments from New York Federal Reserve President William Dudley.
The influential Federal Open Market Committee member said on Aug. 26 that the confidence survey would play an important role in his thinking when the panel meets next Wednesday and Thursday. That statement came during a press briefing at which he said the case for a September rate hike has become "less compelling" in recent days.
"That loss of confidence feeds back into the real economy through lower spending, and that's what the Fed is very concerned about," said Jeff Rosenberg, chief investment strategist for fixed income at BlackRock, the $4.7 trillion asset manager. "That concern ... that's registered in market expectations that the Fed is unlikely to raise rates. I think the weak data has certainly taken down those probabilities, along with the uptick in financial market uncertainty."
The successful bank of the future will have fewer branches but better branding, with technological advancements getting priority over the traditional neighborhood touch, according to an analysis that sees an industry "inflection point" at hand.
Bank branches have been in a modest decline over the past several years, but an acceleration in the trend is one of the major changes that many experts see occurring in the future.
Amid shifting customer needs and demands to find new ways to make money as regulatory pressures increase, banks are adjusting their models toward improving the mobile experience and continuing customer service with less of a physical footprint.
Of the 12 largest banks in terms of branches, only two—Wells Fargo and U.S. Bancorp—are increasing branches. Expect the trend to continue, according to financial services firm Keefe, Bruyette & Woods.
"We believe that reducing the number of branches and reinvesting some of that savings in brand enhancement will be the winning retail bank strategy of the next 10 years," KBW analysts said in a report for clients.
Commercial bank branches edged lower in 2014 to 82,613 from 82,860 a year earlier, according to FDIC data. The number peaked at 83,663 in 2013.
The last of the big economic data points is in. Now it's up to the Federal Reserve to start sending clear signals to the financial markets regarding its interest rate intentions at its meeting later this month.
Market confusion over the course of policy itself could be the Fed's biggest enemy at a time when markets are in flux and volatile. Investors are concerned over how and when the central bank will proceed amid a flurry of mixed signals.
"The heightened uncertainty about whether the Fed will go in September was not what the Fed was hoping for," Ryan Sweet, an economist at Moody's Analytics, said in a phone interview. "They've had September circled for some time. The plan was in late August to start signaling that they're going. The last thing they want to do is surprise markets. From a communication perspective, September is much more difficult than the Fed was hoping it would be."
Friday's nonfarm payrolls report showed the economy created 173,000 jobs in August, a number less than expected but likely to be revised substantially higher in the months ahead if historical trends hold. Other recent U.S. data points show an economy on the mend, though third-quarter gross domestic product appears to have slowed quite a bit.
Read MoreWhat's the real unemployment rate?
Sweet still thinks the Fed will lift off this month, but he makes way for the possibility that the uncertainty could lead to a further delay. Should the Federal Open Market Committee move on rates at the Sept. 16-17 meeting, he expects Chair Janet Yellen to signal a "one and done" approach that will see a single rate hike this year then no further moves until sometime in 2016.
It seems like there's a cyber-hack story in the headlines every other day. But while merchants—and even the Internal Revenue Service—crack down on digital breaches, thieves are targeting another source of power: automatic teller machines.
That is spurring a broad movement to more secure methods of payment.
Crooks are stealing credit and debit card data from U.S. ATMs at the highest rate in 20 years, according to recent data from credit scoring firm FICO, and they don't seem to be slowing down.
Year over year, card skimming, in which thieves swipe user data, at bank-owned ATMs is up a dramatic 174 percent. At non-bank ATMs, compromises are up 317 percent. These numbers represent successful incidents.
Thieves who end up gaining cardholder information then create counterfeit plastic, with the potential to steal every penny out of a victim's bank account.
A market priced for perfection will start to wilt when investors realize things aren't particularly perfect.
Such is the lesson on Wall Street, which saw another huge selloff Tuesday that seemed to lack a significant catalyst.
Sure, there was the overnight economic news out of China, where a key manufacturing index fell to a three-year low. But everyone knew and expected that the reading wasn't going to be particularly inspiring.
A market looking to sell, however, is going to sell, and that's particularly true when stocks are at least fairly valued and in many cases overvalued. Prior to the August selloff, which saw major averages dip 6 percent and fall into correction territory, the equity indexes had been priced to reflect a belief that the U.S. economy would grow around 3 percent, the global economy also was fine and the Federal Reserve would find a way to remain accommodative.
With those and other assumptions challenged, the market finds itself teetering precariously between a fairly routine selloff in the context of a broader bull, and one looking to price in the vacillating probabilities of a global recession.
For months, Federal Reserve officials have been urging investors to shift their focus from the timing of rate hikes to the path the central bank expects to take toward normalcy.
In effect, they've been trying to quell speculation over whether they vote to move in September, that it really doesn't matter when the rate-hiking cycle begins because it's going to happen slowly no matter what.
The date for liftoff will matter tremendously, particularly if the central bank's Open Market Committee decides to move in a month that's likely to be a highly volatile one for financial markets. And if we've learned one thing from this supposedly data-dependent Fed, the most important data point of all is how markets react.
September is setting up as a difficult month for a variety of reasons: Expected continued volatility in stocks, weak corporate sales figures and an economy likely to give back at least some of the gains it achieved in the second quarter.
Throw in some fairly daunting historical trends and it probably adds up to a Fed that stays on hold still longer in the midst of an unprecedented nearly seven-year run of zero interest rates.
Market conditions and stabilizing economic data could lead the Federal Reserve to raise interest rates in October, David Lebovitz said.
Stocks sank and investors ran to Treasurys after a disappointing jobs report pushed off expectations for a Fed rate hike into 2016.
The economy created 142,000 jobs in September, a number that whiffed on expectations and could cool expectations that the Fed will start raising rates.