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Clemson economist predicts slight increase in interest rate

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Teresa C. Hopkins
thopkins@scbiznews.com
Published Nov. 18, 2015

Bruce Yandle, Clemson University alumni distinguished professor emeritus of economics, expects the Federal Reserve to “nudge up the interest rate just a bit at its December meeting.” He said that between now and 2018, the nation will see real gross domestic product growth between 2.2% and 3.0% followed by “a slowing economy, an old-fashioned credit crunch,” in late 2018.

Yandle anticipates the interest rate will increase slightly because of a strong employment report in the Southeastern region, specifically in what he called Charlanta, the area between Charlotte and Atlanta. Yandle gave his remarks at the fourth annual Dixon Hughes Goodman Greenville Executive Briefing Series at the Marriott on Tuesday.

Bruce Yandle, Clemson University alumni distinguished professor of economics emeritus, expects a slight increase in interest rates when the Federal Reserve meets in December. (Photo by Teresa C. Hopkins)

Bruce Yandle, Clemson University alumni distinguished professor of economics emeritus, expects a slight increase in interest rates when the Federal Reserve meets in December. (Photo by Teresa C. Hopkins)

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“If the Fed raises the federal funds rate, over which they have some control, they will, in a sense, be endorsing what the market already has done,” Yandle said. “But of course intervening events, such as the Paris tragedy, could affect what the market sees in the way of interest rates, but I’m sort of betting that this time we will see that move up for the first time since the great recession.”

Yandle expects real GDP growth of 2.2% to 3% in 2016.

“I still think we will see a slowing of the economy, an old fashioned credit crunch, not a 2008 recession … long about 2018, maybe 2019 when the Fed becomes worried about inflation,” Yandle said.

Last year there were five GDP forecasts for 2015, according to Yandle. The lowest forecast was 2.6% from the International Monetary Fund, and the second lowest was from Wells Fargo at 2.9%. The other forecasts were around 3.0%.

“Today we will be lucky if we hit 2.4% this year,” Yandle said, “and that immediately raises the questions ‘Why?’ ‘What happened?’ ”

Yandle attributes the slowdown to the European Central Bank printing more money and the slowing Chinese economy.

“Europe began to run their printing presses at high speed and started printing money faster than we print money, which led to a strong U.S. dollar,” he said. “When our dollar is stronger relative to other countries, we can buy more of their goods, but they buy less of ours. So our imports go up and exports go down, and down goes GDP growth.”

China is the largest buyer of all raw materials and minerals, other than oil, Yandle said. So when an economy as large as China slows down, it slows down production and purchases and brought a sharp reduction in prices.

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