Thursday, August 20, 2015

A Rate Hike Is Coming And It Is Not Priced In.........

A Rate Hike Is Coming And It Is Not Priced In

A rate hike is coming. It is coming because the Fed is trapped and can't allow it's balance sheet to grow any larger. 
It is coming because zero percent rates define crisis not normality. It is coming because the benefits of starting down the path to monetary policy normality are vitally important to the future health of the economy and restoring the Fed's reaction function.

I think the Fed knows it is the right thing to do and desperately wants to reach this milestone.Yet, it wants to ensure it comes off smoothly. Hence the not so subtle hints and suggestions about the time drawing nearer.

I think September is the better choice, even if the arguments for December are reasonable.With the PBOC, BOJ and ECB all in easing mode, it actually makes it a better time to go.

The world can share the benefits and the costs. But one thing I do know, is that with all the hinting and polling and talk of trajectory, it is not priced in. AND MARKETS ARE GOING TO TAKE A BIG TUMBLE IF THE FED RAISES RATES IN SEPTEMBER!

And then there is this....

After 6 Years Of QE, And A $4.5 Trillion Balance Sheet, St. Louis Fed Admits QE Was A Mistake

"Evidence in support of Bernanke's view of the channels through which QE works is at best mixed. There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, evidence suggests that QE has been ineffective.


Market pundits robotically suggest that the Fed should not raise rates because inflation is too low.  Well, if zero rates and $4 trillion in asset purchases did not boost inflation, do they really believe that another few months at zero rates will do the trick?  Some Fed researchers are actually asking whether policies have become counter-productive to their dual mandates. The path to rate normalization will not come without pain. On the contrary, there will be a difficult period, probably even a damaging recession.  

However, while a period of hardship is likely inevitable, purging both bad businesses and market speculation is vital for long-run economic health and will allow more productive businesses to evolve over time.

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