22 06 2015

US Economist: 'The U.S. Economy Is Addicted To Low Rates'

Dr. Mikhail Melnik was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick.

A widespread perception that interest rates may rise later this year may be false, an economist told Benzinga.

"If you pay attention to the economy, it doesn't call for a rate increase," said Mikhail Melnik, professor of economics at Southern Polytechnic State University in Marietta, Georgia, and a consultant to Bloomberg News Corp.

"I believe it wouldn't call for it this year. In fact I don't believe it will call for it in 12 months," Melnik said.

Most officials at a central bank monetary policy meeting earlier this week continued to suggest rate increases were likely for the current year, with gradual increases coming over subsequent years, according to The Wall Street Journal.

Reportedly 15 of 17 Fed officials think a rate hike is likely to be required by the end of this year.

But Melnik said it's a mistake to parse the Fed too closely.

"There were clear signals the Fed would start raising rates earlier this year, a year ago," Melnik said. "We keep repeating the same arguments."

The Fed will act when warranted by economic conditions and currently, "pressure on the Fed to raise rates doesn't exist," Melnik said.

The U.S. economy is "addicted to low rates," according to Melnik and an interest rate hike "could be a shock."

The Fed hasn't raised rates since 2006 and rates have been near zero since 2008.