Janet Yellen Gets Nuts – Ep. 125

* Yesterday, the Federal Reserve finally met market expectations and increased interest rates to .25%
* Actually, the official rate was 0 - .25 and now, the official rate is .25 to .5
* The actual rate was always in the middle between zero and .25
* Assuming the Fed tries to keep the rate closer to .25 than .5, the actual increase in rates could be less than 25 basis points
* The initial reaction to this rate hike is to proclaim the end of the era of "cheap money"
* .25% is still cheap money. Alan Greenspan never went below 1%.
* Some people are saying "Peter Schiff was wrong" because the Fed did raise rates
* Actually, in a recent podcast I noted that the Fed changed their narrative away from "data dependent" to an expression of faith in the economy, opening the door to a symbolic rate hike unsupported by data
* I was alone throughout the year believing that the Fed would not raise rates prior to this change in narrative
* The Fed was afraid that to not raise rates this year, it would be a vote of "no confidence" in the economy
* Ultimately, the Fed felt that even though the data didn't justify it, they had to raise rates because of psychological damage to the markets
* If the economy were really sound, we would not need Janet Yellen to express confidence in the economy - a strong economy creates its own confidence.
* We don't need propaganda in the form of a symbolic rate hike
* The Fed did not even have the last recession in their forecast until we were well into the recession, so who cares about the Fed's level of confidence?
* In an earlier podcast, I referred to Ben Bernanke's comment that he felt he was a representative of the administration
* Janet Yellen is creating a sense of confidence in the economy for the same reason
* The Fed is now pretending that we will have more rate hikes in the future, forecasting 4 more hikes during 2016
* I believe the economy is not strong enough to accommodate these rate hikes and neither does Janet Yellen
* The ultimate irony is the data that came out the morning of the rate hike
* Industrial Production: they were forecasting a drop of .2, which is still bad, instead, we got a drop of .6
* The PMI Manufacturing Index was the lowest in many years, 51.3 down from 52.6
* More bad news: The Philadelphia Fed last month showed an increase of 1.9, so 1.2 was forcasted - instead we dropped 5.9
* These numbers show an economy that is decelerating
* If you look at a chart, these numbers are about to crash even lower
* These numbers are flashing recession, recession, recession
* If you're a Keynsenian, the prescription for the condition this economy has would be stimulus, not an interest rates
* The air was coming out of this bubble anyway, all the Fed did was increase the hole for the air to come out
* The market was up just before the hike, which was interpreted as a green light to raise rates. I said in an earlier podcast that that would be a mistake, because the market would then tank, and that is what happened today
* Transports have been the weakest of all, despite oil prices
* We continue to see weakness in the high-yield bond market as the air is coming out of that bubble
* It is probable that the stock market is going to get a lot worse between now and the time the Fed is supposed to hike rates again
* But the problem for the Fed now, is if the market starts to tank now, they can't do anything until the jobs numbers begin to show weakness
* Janet Yellen actually referred to this move as "ahead of the curve", meaning that if she waited any longer, she would overshoot on her objectives:
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