The Fed screwed up by not raising interest rates sooner

Remember when the Federal Reserve raised interest rates on Dec. 16? It did that for the first time in years by increasing something called the discount rate, which is one of the few borrowing costs it controls.

On that date, the yield on the 10-year US government bond was 2.314 percent.

Today, that yield is 1.933 percent.

So rates have actually gone down substantially since the Fed tried to raise them.

What’s up with that?

In fact, the financial markets are also ignoring the Fed’s take that the US economy is improving and are following interest rates by going lower.

The Dow Jones industrial average has fallen 6.5 percent from Dec. 15, the day before Fed Chair Janet Yellen announced the central bank was taking rates up a quarter of a percentage point.

The Dow and interest rates are reacting to the fact that the US economy — not to mention the world economy — is weak and demand for money is lower.

The theme here is simple: The Fed screwed up by not raising rates sooner. The idea that it will try to raise them again anytime soon is ludicrous.

Their next opportunity will be in early summer.

Let me take you back to 2011 when the price of oil soared by more than 33 percent in the three months ended May 2 — from $84 to $113 a barrel. That’s more than three times the current $31-a-barrel price.

When that happened, every company and independent business person started tacking on a “fuel surcharge” to help pay for out-of-control fuel costs.

Airlines, delivery people, cabbies in DC and Philly (but not in New York), the guy who cuts my lawn and probably even Eddie, who trims my hair, all got into the surcharge game.

So now that the price of oil has tumbled to $31 — and for a period was below $30 — I have a simple question: When are those fuel surcharges going to end?
The answer? Apparently never.

I called a lot of companies last week, and let’s just say they were very evasive. Those extra charges seem to have been absorbed into companies’ ordinary markups — so they now can claim there is no “surcharge.”

Yep, abracadabra, the surcharges disappeared into their regular price.

FedEx gave me the lamest excuse, saying that it recently “experienced a significant increase in demand for residential deliveries, largely driven by the growth of e-commerce.” So it wasn’t going to give back the extra cost for fuel.

In other words, customers are screwed because FedEx decided to deliver a lot of packages for Amazon Prime at a cheap rate.

Southwest Airlines proudly told me that it didn’t charge a surcharge, until I pointed out that it had one on cargo. Then it apologize for misleading me.

The fact that shippers and airlines are still padding their profits with these charges doesn’t sit well with me or with Brandon Gale, the president of Retail Shippers Associates.

“As you’ve probably figured out, our members (like other shippers) are nonplussed about the fact that UPS and FedEx continue to apply a fuel surcharge to all shipments even though the cost of fuel has plummeted,” Gale told to me.

“Their answer for ‘why?’ does not hold water,” said Gale. “The only reasonable conclusion is that it represents additional profit, but you may get a different answer that makes sense.”

I’ll give credit to one company — Peapod, which is a subsidiary of Stop & Shop. Peapod, which delivers groceries to homes, has a strict formula for when fuel surcharges kick in. When gasoline prices are under $3 a gallon, the surcharges disappear.

When you have some time on your hands, call up the companies you do business with and ask if they added an additional charge when gasoline prices were high.

If they say yes, ask when they are going to end those charges.

Let me know what you find out.

Last Friday, the Commerce Department announced that the US economy grew at only a 0.7 percent annualized rate in the fourth quarter.

This is what is called the “advanced” reading of the gross domestic product, and there will be two more revisions before Commerce is finally finished with last year’s final quarter.

The “advanced” GDP is based mostly on guesses, and it’s likely that the 0.7 percent will be revised lower because durable goods orders in December plummeted and the government didn’t seem to have time to capture the actual drop before Friday’s release.

The stock market and oil prices rose sharply last Friday, because it was the end of the month and professional traders desperately needed a rally to improve their performance before they reported to customers.

There was no other reason — desperate measures taken by the Bank of Japan, and the poor US GDP rate were ridiculous explanations. And rumors that OPEC was going to cut back oil supplies were quickly quashed.

On Monday, at the beginning of trading, stocks and oil prices fell sharply because the pros no longer need to push those markets higher.

This sort of manipulation will always happen until regulators make it stop. But until that happens — which’ll be never — readers should be careful not to get caught in this little game.