Graphic attained from: B. Rich Hedgeye. (9/21/2016). Hangin' On. https://app.hedgeye.com/insights/53972-cartoon-of-the-day-hangin-on
I’m just another Fed watcher, eyeing each pulse of our Federal Reserve for any indication of rate adjustment. I’ve read through the transcripts, from the last 30 years. The Fed policy can be a mystery at times, however retrospectively, I believe we can make sense of it. Today the FOMC didn’t raise rates. Wall Street is long financial instruments dependent on the Fed not raising rates, yet I think the Fed needs to raise rates. Here lies the problem and why, I believe today the Federal Reserve just capitulated today. Let’s begin, our Federal Reserve has been pined in the corner for many reasons over the years. First, they underestimated unemployment before the crisis by over a 100% and had to stimulate the market until it was fixed, which currently is 4.9%. Second, and the most complicated of their task is price stability. Here is where the capitulation lies. The Fed’s were able to raise rates earlier this year resulting from other central banks, around the world, ballooning their balance sheets. Currently, the market distortions have created a dangerous environment. Let me explain, its like the entire global finance structure is on a high speed train, going full speed, through an earthquake prone area and any bump will derail the train. One might ask, if that is true then why didn’t Brexit take it down. The financial markets were prepped for Brexit, because the global central banks are pushing full steam ahead. However today, the Fed has indicated they want to raise rates, but they can’t unless the other central banks keep pushing because of their requirement for price stability. Since Jackson Hole, the Fed has indicated they’re ready to raise rates and the other central bankers came back with a blunt “NO”. The other banks indicated this at there last meetings of the ECB and the BOJ. Since Jackson Hole, the ECB has taken off the table certain carrots of their stimulus programs for Wall Street and the BOJ has back off and rewritten their stimulus program altogether. Did the Fed capitulate? The Fed has made it clear they are done expanding their balance sheet. I think the Fed is concerned about their position, based on the announcement today by Dr. Yellen. Dr. Yellen, dare I say, was boastful after she raised rates earlier this year and now seems apprehensive. The markets don’t flout reality well and the longer they do, the more in danger they are of combusting.
Bureau of Labor and Statistics. (9/02/2016). CPS News Release. Retrieved from http://www.bls.gov/cps/ European Central Bank, (9/19/2016). Press Release. Retrieved from https://www.ecb.europa.eu/home/html/index.en.html Bank of Japan. (9/21/2016). What's New. Retrieved from https://www.boj.or.jp/en/ Board of Governors of the Federal Reserve System. (9/21/2016). FOMC Press Conference on September 21, 2016. Retrieved from http://www.federalreserve.gov/monetarypolicy/fomcpresconf20160921.htm