Citi On The Four Reasons The U.S. Economy Can't Support A Rate Hike Right Now

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The U.S. economy can’t afford a Fed tightening cycle right now, because it is still battling the impact of higher oil prices, a rough winter, and declining home prices according to Citi’s Robert DiClemente.While there may be a strong push for the Fed to end QE2 early, begin selling assets, or start some sort of interest rate tightening cycle, DiClemente argues we haven’t seen the wage growth that would suggest it was time to tighten.

From Robert DiClemente:

We would differ strongly with speculation that officials will or should cut back on asset purchases. With the program almost nearing completion, an early end to purchases would likely yield very little if any benefit and could entail undesirable costs. Halting purchases at the end of this month could entail a double-barreled jolt to markets tantamount to an outright tightening of policy because it would affect both long-term markets directly and trigger a repricing of the expected timetable for raising overnight rates.

For a complete walkthrough of why DiClemente feels it is too soon to tighten, check out these charts on the state of the U.S. economy.

Not only is the labour market improving, but expectations for future strengthening are rising.

Consumer spending remains weak.

Higher energy prices are hitting real wages.

Housing market weakness is still hindering the impact of the wealth effect.

Higher stock prices are helping tu support wealth, however.

The March jobs report was definitely good news.

Job growth is outperforming previous recoveries, but from a lower start point.

The job situation is improving.

As the market improves, more people will reenter the workforce, potentially raising the unemployment rate.

The Fed usually does not begin tightening until wage growth picks up.

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