Fed’s action, global crisis expected to have little effect on region, economist says

The Federal Reserve’s decision this week not to raise its interest rates and the global economic crisis – particularly China – should not have a short-term effect on the region’s economy, says a Wells Fargo economist.

Mark Vitner, a managing director and senior economist at Wells Fargo, told area business leaders Friday that the immediate economic outlook in York and Lancaster counties is better than the state and nation. The growth rate in York and Lancaster counties is about 5 percent, more than twice the state and national average of 2.2 percent.

“And that’s before the addition of LPL Financial and Lash,” Vitner said. Recruitment of the two first businesses to the Kingsley Park in Fort Mill were announced in 2014. Construction of their headquarters is underway.

Fluctuations in Chinese market should not affect Giti Tire’s plans to build a plant in Richburg or Keer America’s cotton yarn production at its new Indian Land plant, Vitner said.

But there are longer term implications, Vitner told the crowd at his annual economic forecast breakfast at Winthrop University. The crisis in global markets could result in less foreign investment in the United States. Manufacturing problems in China could drive up commodity prices, affecting U.S manufacturers, he said.

The most immediate effect may be how businesses react to the Federal Reserve’s decision not to raise rates, he said. Businesses may hold onto capital instead of investing it, waiting for more certainty in the global markets.

A weak global economy, persistently low inflation and unstable financial markets were reasons the Federal Reserve cited for not changing it interest rates.

Vitner was among the economists that predicted the Federal Reserve would raise rates this week. “But what they should do and what they are going to do is different,” he said.

The Federal Reserve could raise rates at any time, but December is more likely, said Vitner, though that’s a “close call.” Historically when the results from the Institute of Supply Managers’ monthly survey are falling, the Federal Reserve has never raised interest rates, Vitner said.

The services index fell to 51.5 percent in August, a drop of 1.2 percent from July. For the year, the monthly average has been 53.9 percent. Any rating in excess of 43.1 percent, over a period of time, generally indicates an expansion of the overall economy, according to the institute.

While “you can never plan for recession,” Vitner said it is likely whoever is elected president in 2016 will either inherit, or soon, face a recession. Revamping a federal tax code that passed in 1986 and passing a highway bill are two factors that would “lift the speed limit of our economy,” he said. “We need a 21st century tax code.”

The Federal Reserve could respond with more qualitative easing, a policy where the Fed buys government bonds and other securities to lower the interest rate and increase the money supply.

Previous qualitative easing have not had the intended consequences, Vitner said. While it can add strength to the financial system, it “takes away the urgency from Congress and the president to do something about the economy.”

This story was originally published September 18, 2015 at 3:46 PM with the headline "Fed’s action, global crisis expected to have little effect on region, economist says."