Once again the financial world, and in particular the financial media, are all in a tizzy over the statement that will be coming out from the Federal Reserve Open Market Committee (FOMC) later this morning, September 17, 2015, regarding the decision on whether to begin the long awaited end to the Zero Interest Rate Policy (ZIRP). Anyone who has read our commentaries over the years knows that we think there is far too much emphasis on the actions of the Fed in determining the outcome of the economy. We in no way suggest what the Fed does, or does not do, is immaterial to markets and the economy, but the idea that the Fed is the ultimate arbiter of economic growth, or lack thereof, is simply ridiculous!
As we have stated, it is our view that the Fed is long overdue in ending ZIRP. In fact, we believe the economy could have withstood rate hikes as long as two years ago. At the very least, during last years' surge of growth (Summer 2014), it would have been an excellent time to begin the process. Now that they have waited so long, they have backed themselves into a corner and are headed towards raising rates at a time when global growth has slowed. This is what we feared about waiting too long to get on with the process. That said, regardless of the problems with economic growth in the emerging world, and in spite of what we admit is a subpar economic environment in the U.S. and the rest of the developed world, we believe that further putting off the inevitable serves to retard growth even more.
There are many reasons for subpar economic growth. We have pointed out in the past that the regulatory burden on business is far too high; that government intrusion in the private marketplace is onerous and government spending too large. We have suggested that the tax code is far too complex and creates disincentives to economic activity.
All of these things are drains on growth and yet the amazing thing is that we are growing IN SPITE of all this nonsense. It is the entrepreneurial economy that ultimately drives economic growth over time and at this point, the Fed raising rates .25% is absolutely irrelevant in that bigger picture. In fact, they could raise rates to 1 or 2% and it would not stop the engine. We think the signal it would send is that the constant vigilance over "looking for the next crisis" may be put to bed for a time, and that ultimately provides the backdrop to get on with fixing the things that are really holding us back from what should be an amazing era of growth, given the significant innovation that continues in the world of the entrepreneur.