Market Commentary

The FED is Confused

At the beginning of the year the Federal Reserve was using two primary reasons for their relentless Fed Fund Rate increases. One was inflation and the other was that rates were just too low and accommodative for an economy that was doing well. Another unspoken reason might be they want to get them higher so that they can lower them in the next recession to boost the economy when it is needed.

Recently the inflation reason has died. They rarely speak of underlying pressures of inflation any more. I think inflation was never a problem and I have written so all year. Now with oil prices collapsing and the world economy slowing there is no inflation pressure. Yes we have a little in wages but not enough to be a worry after all the PCE annual rate stands at 1.8% and that is the inflation statistic the Federal Reserve likes to use.

The FED Chairman Powell in recent weeks has changed his tune saying that interest rates are near neutral and not so accommodative. Then other Fed presidents hint at more rates increases contradicting the chairman. So which is it?

I have a thought; why not just leave them alone?

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