After almost seven years, the beginning of the end of ultralow rates is here.
What’s that you say? The Fed is going to raise rates?
Remember the so-called taper tantrum in 2013, when some traders dumped Treasuries to express their ire at the Federal Reserve for having the temerity to suggest that rates can’t stay at zero forever? Today it’s hard to imagine anyone left who doesn’t understand a rate increase is coming, most likely sooner (2015) rather than later (2016). Still, there’s a whole generation of traders who have never seen a rate increase, the last of which was a 25 basis-point bump in the fed funds rate way back on June 29, 2006.
Regardless, normalization of interest rates can’t get here soon enough for me, if for no other reason than to end this incessant game of “Will they or won’t they?” Higher borrowing costs are a small price to pay to shut up the ninnies who feel compelled to engage in the semantic game of parsing each and every word of every speech, Q&A session, and most especially the latest Federal Open Market Committeestatement.
Instead of hanging on every Fed utterance, let me suggest you take a different approach. Take one phrase from the Fed as your mantra: data-dependent. The rest of the Kremlinology over the incessant communications from, by or about the Fed should be ignored with prejudice. Instead, step back and take the 30,000-foot view to understand what is happening today, and what is most likely to occur in the future. That does a far better job communicating what is likely to happen than anything Fed Chair Janet Yellen will say in a news conference.
The big picture is simply this: The Fed has a dual mandate to keep inflation under control – check! – and to increase U.S. employment –check! When the Fed says any interest-rate decision is data-dependent, this is it’s talking about. If you want to put some flesh on those bones, let’s consider a few bullet points about the present environment
Continues here: Pay Attention, Ignore the Fed
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Category: Financial Press
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Category: Financial Press
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