What the Fed Just Said About Rate Hikes: Should You Be Listening?

The Fed announced they won't be raising rates in June. Did you notice? Maybe more to the point, should have you been listening in the first place?

Whatever you did, we did notice. It's just part of our usual scan of the economic/financial headlines. After all, it's our business. If you, on the other hand didn't bother, no worries. You didn't miss anything of any significance. After all, they've been talking about raising rates for how long now? If you've lost track, join the club.

Sure they did in fact raise once - a move that almost instantly backfired. You have to wonder what was the point of it. Was it designed to test the waters? Was it done because they talked about raising rates for so long - without ever pulling the trigger - that it became an embarrassment each time they didn't raise raise rates? Frankly, who cares. They're not raising 'em in June.

As for why, take your pick of reasons. There was this posted on Reuters:
Federal Reserve policymakers decided in June that interest rate hikes should stay on hold until they have a handle on the consequences of Britain's vote on EU membership, according to the minutes of the Fed's June policy meeting released on Wednesday.
Or this on Bloomberg:
Federal Reserve officials left interest rates on hold last month as heightened uncertainties about the U.S. labor market and financial stability threatened their outlook, according to minutes of their meeting the week before the U.K. voted to leave the European Union.
So before Brexit happened, they were going to say "no raise" due to an uncertain labor market as well as concerns about "financial stability." After Brexit, they decided the "Leave" vote would serve as a reason to stay put. Do they just make stuff up on the fly?

The other thing we noticed was the dearth of claims that the economy was just Jim Dandy, or at least approaching Jim Dandy. ("Jim Dandy" is an old expression, in case you're wondering.) Could they be giving up on the economy? Doubtful. They never do. Before the Great Recession, indeed far into it, the Fed kept talking up the economy, even as it contracted. That's what they did then, and it's what they do as a general rule. It's only when the government puts out numbers that, like giant sledge hammers, break through the wall of optimistic B.S. that they might ever change their tune. Otherwise, the Fed constructs and holds up the tale of Goldilocks through thick and thin. You just won't hear them say there's trouble ahead.

For scoping out trouble, you'd do well to rely on your own resources - or at least don't rely on the Fed sending a warning signal.

With that in mind, you were fine if you didn't listen to this latest round of "no raise," and you'll likely be better off if you don't listen next time.



Comments

Popular Posts