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Business/Finance See other Business/Finance Articles Title: Fed Stands Pat, Blames the Rest of the World Fed Stands Pat, Blames the Rest of the World Mike Larson | Wednesday, March 16, 2016 at 4:20 pm Don’t look at us. It’s the rest of the world’s fault! That was the loud-and-clear message coming from the Federal Reserve today. I say that because policymakers took a pass on raising short-term rates from the current 0.25-0.5% range, despite sounding relatively optimistic about the domestic economy. Specifically, the post-meeting statement said that “household spending has been increasing at a moderate rate,” that the “housing sector has improved further” and that there has been “additional strengthening of the labor market.” It also said that prices might be low now, but that they should rise “as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.” So why not move? Because the world is a mess. Or in Fedspeak, “business fixed investment and net exports have been soft” and “global economic and financial developments continue to pose risks.” Chairman Janet Yellen also said in her press conference that weaker global growth and financial market volatility overseas was causing U.S. financial conditions to tighten somewhat. Policymakers are apparently so concerned that they even lowered their projections for how many rate hikes they’re planning to implement this year. The average expectation is two hikes now, compared with four previously. Not everyone favored a “do nothing” approach. Kansas City Fed President Esther George voted to hike rates by a quarter-point. But she was clearly overruled. Personally, I’m less sanguine on the U.S. economy than the Fed appears to be. I believe the backdrop is more mixed. Unsold inventories have been piling up, while supposed early-year strength in retail sales was just revised away. Inventories are building up, another worrying sign for the U.S. economy. The jobs data has been relatively decent. But even it has some hair on it. Worrisome activity in the commercial real estate and auto markets also tell me that future growth is likely to disappoint. So what does this all mean for the markets? Well, the Fed’s inaction and policymaker comments today caused the dollar to tank against almost every other major currency. That included safe haven-style currencies like the Swiss franc and the Japanese yen … traditional dollar alternatives like the euro and British pound … and so-called commodity currencies, such as the Australian and Canadian dollars. Gold also reversed sharply, tacking on more than $30 an ounce at one point after declining earlier in the day. Higher-yielding, lower-volatility stocks that I favor, including utilities and consumer staples, surged even further in value. That helped push the broad averages higher. But bank stocks lagged notably, as did many biotech names. “All this central bank talk and “on again/off again” policymaking is deterring investors from focusing on the real issue out there.” Once you get past the short term, though, I contend that all this central bank talk and “on again/off again” policymaking is deterring investors from focusing on the real issue out there. We’re late in the economic cycle, and we’re late in the credit cycle. That means this is going to be a more treacherous and volatile environment for investors, no matter what the Fed or its foreign counterparts do. So don’t let the latest chatter from Janet Yellen or Mario Draghi distract you from that. Ditto for the wild short-term swings we’re increasingly seeing in the markets. Now it’s your turn. Was Janet right to sit tight on rates? Or should the Fed have gone ahead and hiked? Is it right to focus so much on global developments? Or should the Fed stick to its domestic knitting? Speaking of the domestic outlook, do you think the economy is doing well? Just okay? Lousy? Let me hear your thoughts in the comment section below. Poster Comment: It has become more than apparent that we are in recession, and have been for quite some time already. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 1.
#1. To: BTP Holdings (#0)
Indeed, we've been demonstrably sliding downhill since '07, at least.
There are no replies to Comment # 1. End Trace Mode for Comment # 1.
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