The Fed is Wrong About the Economy
Lance Gaitan | June 19, 2019 | As you know, the Federal Open Market Committee (FOMC) meets every six weeks to decide whether they need to change policy to coax our economy in the right direction. You also know that the Fed has a Congressional mandate to provide maximum employment and stable prices, which it works to achieve by manipulating interest rates. Well, Fed Chair Jerome Powell delivered his policy statement and their latest rates decision this afternoon. Drum roll please…: the overnight rate remains unchanged at 2.25% to 2.50%. Yet Treasury bonds clearly show that the Fed is way off on its assessment of the economy and monetary policy. Long-term Treasury bonds are telling us that short-term rates need to be lower for the economy to grow further, especially since inflation is and has been muted. But since December, when it moved rates higher, the Fed has been bungling from one meeting to the next. The markets reacted swiftly to its end-of-year mistake. The yield curve flattened and stocks fell sharply into the holidays. At the time, the Fed was considering two more hikes in 2019 and Powell stated that the balance sheet would continue to shrink for the foreseeable future. As the carnage unfolded, he and the other voting members of the FOMC backed off previous statements and eventually calmed the stock markets, which have recovered nicely since then. Then, in May, the Fed decreased the balance sheet reduction to $15 billion per month, with the goal to end the "normalization" process in September, with a little over $3.5 trillion in Treasury securities. Ahem… I'm not sure why the Fed thinks the balance sheet is "normalized" at $3.5 trillion, when it was less than a $1 trillion before the 2008 financial crisis. It's just more evidence that the Fed gang isn't seeing the world the rest of us see. Take a look at how the yield curve has developed since just before the December rate hike in the chart below… READ MORE » How to Build a Recession-Proof Portfolio  Chief Retirement Strategist Charles Sizemore will be taking over The Rich Investor all week to talk about something on everybody's mind… How close are we to the end of the bull market… and what can you do about it? He'll talk about Warren Buffett's worst advice… the three keys to a recession-proof portfolio… and more! Be sure to check your email inbox each day around 11am ET or click here to visit The Rich Investor.
| Trending Stories... The dark days of 2009 now seem like forever ago. We didn't know which banks would survive. The Fed made all banks take bailout money so that citizens wouldn't know which ones were in trouble and then drain them of deposits. The Fed made bank stocks ineligible for shorting so that investors wouldn't drive their... With all eyes focused on Facebook's cryptocurrency reveal tomorrow, what the Fed will do this Wednesday, and Slack's IPO on Thursday, all of which we'll address in the coming days, let's turn our attention to another major issue that is silently unfolding: the great baby bust. More than any of the current hot events, it... When my team first heard of this cycle, they thought I was crazy. They begged – begged – me not to publish anything about it. I did it anyway, and when people heard about it, many thought I was coo-coo. Some people still do. But this cycle has proved to be one of the best... The state of New Jersey is putting a stake in the ground. Or rather, a stake through the hearts of taxpayers and citizens. But that's nothing new. Anyway, Governor Phil Murphy recently announced the state government's goal to reduce carbon emissions 80% by 2050, compared with the 2006 levels. That's great. He plans to do... Never mind that China is the talk of the world, right now, what with the U.S.-China trade war in full swing, I've talked a lot about China's overbuilding bonanza since the 1980s… and especially since 2000 with total debt exploding 64 times since. China doesn't just print money like the rest of the developed world.... | 
No comments:
Post a Comment