This week, the headlines have been dominated by the Democratic National Convention pushing Janet Yellen’s latest FOMC non-action to “page 6.”
Of course, it was not surprising to hear yesterday Janet Yellen has once again “flip-flopped” on hiking rates. This tweet from HedgEye sums it up nicely.
In honor of Summer, we’re breaking out #Fed flip flops:
Hawkish JULY pic.twitter.com/wK7Cxk7tS9
— Hedgeye (@Hedgeye) July 28, 2016
Come July, Janet Yellen and the FOMC are going to once again ‘punt’ hiking interest rates in favor of waiting for ‘global instability’ due to the ‘Brexit’ to subside. However, as stated this is a mistake for a couple of reasons.
First, with the markets making new all-time highs, there is a ‘price’ cushion available for the markets to absorb a rate hike without breaking important downside support.
Secondly, with Central Banks globally flooding the markets with liquidity, a further ‘shock absorber’ is currently engaged in softening the impact of a rate hike.
Lastly, the economy is likely going to show a bit of ‘strength’ in upcoming reports, with slightly stronger inflationary pressures. This pickup in economic strength will be another inventory restocking cycle following several months of weakness. As has been in the past, it will be transient and that strength will evaporate as quickly as it came.
If I was Janet Yellen, I would hike interest rates by .50 bps immediately in a surprise announcement and use the price and Central Bank liquidity cushions to soften the blow. This would move the Fed towards its goal of reloading its primary policy tool while there is some ability to temporarily control the outcome of the rate hike.
But that is just me. She won’t do it.”
Now the question will be her excuse will be for not hiking rates in September to keep from affecting the outcome of the Presidential election. As my friend Danielle DiMartino-Booth stated in her interview with me:
“Global instability is now the perma-excuse for the Fed.”
The only question will be where that instability pops up next?
Here is what I will be reading this weekend.
- H’s Tax Plan Can’t Cover B’s “Free Stuff” by Caroline Baum via MarketWatch
- 50 Altered States Of U.S. Housing by Danielle DiMartino-Booth via Money Strong
- China May Be Caught In A Liquidity Trap by Sid Verma via Bloomberg
- America’s Gas Glut To Send Prices Lower by Matt Egan via CNN Money
- Oil Prices On A Crash Course This Fall by Charles Kennedy via Oil Price
- America’s Exploding Deficit by Martin Feldstein via Project Syndicate
- When Helicopters Eventually Crash by Tom Stevenson via The Telegraph
- The Fed’s Psyche by Tim Duy via EconLog
- Could 2016 Get Even Worse by Peter Apps via Reuters
- Fed May Reach For Punch Bowl by Greg Robb via Market Watch
- Pension Problem Worse Than It Appears by Steven Malanga via MI
- Who Will Pay For PBGC’s Huge Losses by Alex Pollock via RCM
- Both Parties Want To Break Up Banks? by Andrew Sorkin via NYT
- PermaZero by James Bullard via RCM
- Investors Need To Seriously Lower Expectations by Jeff Reeves via Tumblr
- Will Millionaires Bail On Stocks Post Election by Robert Frank via CNBC
- Revenge Of Unrealistic Expectations by Robert Samuelson via Real Clear Markets
- Bond Market Riddle No Riddle by Jeff Snider via Alhambra Partners
- Restaurant Industry Signaling Recession by Myles Udland via BI
- Stocks Could Predict White House by Adam Shell via USA Today
- Things Are Great/Terrible – Buy Stocks by James Mackintosh via WSJ
- How To Trade Trump/Clinton by David Keohane via FT Alphaville
- Companies Sitting On $75 Trillion Bomb by Jeff Cox via CNBC
- GMO’s Strategy Being Tested by Bailey McCann via Institutional Investor
- Elections, Recession & Fed by Ed Yardeni via Yardeni Research
- Beware Of False “Profits” by Doug Kass via RCM
Always Good To Read
- Reach For Yield Is Dangerous by Jason Zweig via MoneyBeat
- Economists Give Up On Friedman’s Idea by Noah Smith via Bloomberg
- Home Ownership Crashes In U.S. by Tyler Durden via Zero Hedge
- American Entrepreneurship In Decline by Steve Glickman via Daily Beast
- Extremes & Historical Outcomes by John Hussman via Hussman Funds
- Does Clinton Want To Lose by Brett Arends via MarketWatch
- Earnings Smaller Than They Appear by Neil Howe via HedgEye
- America’s Rolling LBO by David Stockman via Contra Corner
- Vice Tightens On Stock Market Range by Dana Lyons via Tumblr
- Investors Relying On Dangerous Rationalizations by Jesse Felder via The Felder Report
“All Sunshine Makes A Desert” – Old Arab Saying
Questions, comments, suggestions – please email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In