NEW YORK (TheStreet) -- Federal Reserve policy makers meet Tuesday and Wednesday, and markets are looking for clues about when Chairwoman Janet Yellen will raise short-term interest rates. Globalization, however, makes that decision far less important for the economy and stock prices than in years past.
The Fed has good reason to want higher rates. Rock-bottom interest rates make longer-term bank lending to businesses less profitable and risky: When interest rates rise again, banks take losses on longer-term loans still on their books.
Instead, very low rates encourage banks to finance trading in commodities and securities and private-equity deals in which assets are flipped and loans are repaid quickly, adding little economic growth.
Yet, as the Fed attempts to raise rates, both the U.S. economy and global markets will push back.
Much has been said about an improving jobs market and retail sales, but the May surge in employment seems more likely a temporary bounce from the cold and snowy winter. Overall, the economy is returning to moderate and hardly robust growth and can hardly bear substantially higher medium and longer-term interest rates, especially in the key auto and housing industries. However, these days globalization curbs Fed effort to raise those rates.
The Fed's principle policy tool is its ability to virtually set the banks' overnight borrowing rate, the federal-funds rate. The overall effectiveness of Fed policy depends on whether increasing that rate significantly pushes up rates on mortgages, corporate and municipal bond and other longer-term borrowing, and, in turn, whether higher bond rates push investors from stocks into bonds, heading off any emerging bubble in equity markets.