The Fed Part Deux
As we all know too well, the Fed raised rates in December albeit with a great deal of debate about the advisability of this action. We have also seen most markets basically tank this year.
So, let’s ask and answer a few questions.
GG: Was this action a “good” idea?
GG: Yes, but…
GG: Why is there always a but?
GG: That’s life. The Fed should have done this a year earlier or minimally in Sep. It would have been slaughter had they had not raised the rate 25 bp in Dec going back to their many communications challenges and truly failures. This finally led them to make an historic change.
GG: But the markets invariably did go down and in some cases precipitously since Jan began. So what was achieved?
GG: They finally took action, which I – and many — believed they should have done far earlier. The data indicated it would be OK.
GG: So how many future rate increases will be taken in 2016?
GG: The dot plot from Dec indicated 4. Many observers believe that is overstated and there will be 1 or 2 or 3 at the most. Some believe we’ll see them actually lower rates.
Few expected any increase in Jan, but the Jan Fed meeting commentary suggested continued action…. Maybe. As usual there’ll be debate about what they really said – and, more importantly, what they really meant. Again!
GG: But why did they raise in December versus this past September?
GG: NO good answers to that question when asked twice were provided. Conditions were better in September, so she (Yellen) increased rates in Dec because in reality she had to. The Fed will not say they made a mistake, but many understand and believe that to be the case. Now we’ll see.
GG: So are they now miscommunicating poorly — again?
GG: Yes. They painted themselves into a corner last year. Odds are they’ll do it again.
GG: Ok, get out your crystal ball? Up, down or no change in March.
GG: No change.