Fed Admits It Needs Evidence Q1 Weakness Was Transitory – Ep. 251

Fed Admits It Needs Evidence Q1 Weakness Was Transitory – Ep. 251

Summary: The Fed is now indicating it needs evidence that the Q1 weak economic data is transitory and not a trend. This is interesting for 2 reasons. The Fed's narrative has always been to tout economic growth even in the face of flimsy or no supporting data. Now the Fed is actually admitting there is weakness. The other interesting thing is that, although the Fed continues to claim it is "data dependent", it has been ignoring the economic data ever since the first rate hike. The market puts chances of a June rate hike at almost 100%. Maybe that is because it believes the Fed will raise rates regardless of proof.

* On Wednesday we got the release of the Federal Open Market Committee's minutes
* As usual, the FOMC is indicating that as long as the economy continues to evolve according to their forecast, that it would be appropriate to remove additional accommodations soon
* And, I guess the markets are assuming soon is in about 3 weeks when the Fed meets in June everybody anticipates that the Fed will hike rates again
* Actually raising interest rates all the way back up to 1% - that would be the new floor on rates
* That was the lowest that rates got during the Greenspan era that gave us the housing bubble and ensuing financial crisis
* It's taken a long time even to get up to that insanely low level of interest rates
* But everybody still assumes - I think the probability is near 100% - that the Fed is going to raise rates in June
* But what I thought was interesting about those minutes, and nobody's talking about this
* In the minutes, the Federal Reserve said that they are also looking for proof that the weak economic data from the first quarter was transitory
* They're looking for proof in order to continue to raise rates
* I'm thinking, if the Fed says they need proof that Q1 data was transitory, are they actually going to get that proof by the June meeting?
* If they don't have the proof yet, are they going to have it by June?
* Almost all the economic data that has come out recently, including this week, has been pretty bad
* In fact, the data that we're getting confirms to me that rather than being transitory
* The weakness in the first quarter is likely to continue
* If it's transitory at all it is because we're transitioning into a recession
* So if the Fed is looking for proof that the economic data was transitory, thus far they haven't gotten any
* If they actually need the proof prior to raising rates, they maybe they are not going to raise rates in June
* The market doesn't seem to even give that a possibility
* Maybe it's because the Fed claims to be data dependent
* Yet they've ignored data ever since the first rate hike
* Now they are saying that the data they are depending on is data that is going to provide proof that the first quarter weakness is transitory
* Maybe the markets aren't buying that, they're saying, "We think the Fed's going to raise rates regardless of whether or not there's any proof."
* Even if there is no proof, they are going to pretend that there is
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