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Today was “Fed Day” — and, as usual, there were quite a few fireworks.
No, the Federal Reserve didn’t actually raise short-term interest rates yet. But it did suggest it’s still on track to do so down the road.
At the same time, policymakers signaled they remain worried about weak energy and non-energy prices. Those developments were driven in part by overseas turmoil and the epic dollar rally of late 2014.
Specifically, the post-meeting statement said inflation “continued to run below the Committee’s longer-run objective.” Then at her post-meeting press conference, Chairman Janet Yellen highlighted the fact inflation is projected to be “quite low” this year.
Yellen also noted that net exports remain a “substantial drag on growth.” That’s another big finger-point at the dollar rally, because the rising greenback has made our products more expensive vis-Ã -vis those produced by foreign counterparts.
While Yellen did say the labor market is showing “further progress” overall, she also noted that the pace of growth has slowed a bit recently and that wage growth remains “relatively subdued.” And she warned that the Fed is very worried about making waves with policy, saying the Fed wants to “avoid any type of needless misunderstanding of our policy that could create volatility in our market and potential spillover into emerging markets.”
| “The meeting comes amid a backdrop of increasing turmoil and confusion.” |
In response to the Fed’s decision and Yellen’s comments, the U.S. dollar weakened sharply across the board. Gold and silver prices jumped, while beaten-down emerging market shares reversed course and surged after suffering big losses earlier in the day.
In the interest-rate market, the yield curve steepened. Shorter-term yields fell, while longer-term yields rise. That’s what you typically see when the bond market is growing more worried about longer-term inflation risk.
So why did the Fed take the approach that it did? I believe it’s because the meeting comes amid a backdrop of increasing turmoil and confusion. Greece is hurtling toward the financial abyss, with even that country’s central bank warning of an “uncontrollable crisis” that poses “great risks for the banking system and financial stability.”
As Yellen noted, wage growth also remains lackluster. GDP actually shrank in the first quarter of this year, and the surging dollar has clearly helped kneecap key sectors like energy and manufacturing.
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| Fed chief Janet Yellen: Inflation is projected to be “quite low” this year. |
Me? I’ve been as crystal clear as I can here in Money and Markets and elsewhere. The Fed should have raised interest rates at least once already to get policy back to some semblance of normalcy … and paired that with more “open mouth” operations to beat the dollar back.
It’s clearly starting to head in that direction, by talking about future rate hikes but also signaling discomfort with the dollar’s exchange rate value. But it looks like bond investors are no longer waiting around for Yellen to catch on.
Indeed, they’ve been selling like mad despite the fact the Fed hasn’t officially hiked yet. That is driving bond prices sharply lower in “Bloody Wednesday” fashion, while recently pushing the yield on the 30-year bond to a nine-month high.
Given what the Fed is doing and saying, I continue to recommended you stay the heck away from longer-term government debt, bond ETFs, and bond mutual funds.
Instead, keep maturities short and/or hold cash to avoid losses. I also suggest you shift a reasonable, measured amount of money into sectors and stocks that have already been crushed. Unlike many high-flyers, they’re the ones that have some built-in resistance to further declines driven by interest rate volatility.
Bottom line: Today’s Fed meeting makes it even more clear that the era of never-ending free money will be coming to an end before long, but that the path to higher rates will be winding. That will have wide-reaching repercussions over time, including higher volatility along the way no matter how much Yellen tries to tamp it down.
So what do you think about today’s Fed meeting? What do the Fed’s latest moves and comments mean for stocks, bonds, and currencies? Are you making any shifts in your holdings these days, in light of the evolving monetary policy backdrop? Let me know when you get a chance to comment at the website.
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With the clock ticking down to zero on the Greek debt negotiations, I laid out my game plan yesterday for dealing with what might come next. Several of you responded with your own thoughts, so let’s recap them for everyone’s benefit.
Reader Vern thinks things are definitely coming to a head – and that there’s an important lesson about our future here, too. His comments:
“The Greek Prime Minister sounded like he isn’t going to give in. If the European Union is really serious about not giving in, which they should be to avoid other PIIGS doing the same as Greece, Greece will default since they don’t have the money to pay the payments that are due.
“If Greece defaults, their pensions and other giveaways will have to end. Several cities and states, and the whole U.S., are following the same recipe as Greece has been cooking with.”
On the other hand, Reader Ted K. said he’s more optimistic about a last-minute save. His view: “I believe we will have a Greece deal. If Greece defaults, Russia will advance its position with Greece due to its geopolitical position. This will have a negative impact to the U.S. and the whole of Europe in general. The solution in Greece is political not economic as it appears.”
Speaking of Russia, Reader Ken said that may be where Greece is forced to turn for help. His take:
“There is another possibility for Greece that you have not considered. Russia could come to the aid of Greece and help stabilize them, while they get concessions to establish military bases and use of ports in the Mediterranean to build naval ports for the Russian navy.
“This would give the Russians another foothold to expand their control over Eastern Europe without having to go to war. Italy, Spain and Portugal could easily be the next stepping stones for expanding their power. Also they would pick up a lot of trading partners along the way. The Cold War in not over!”
Finally, Reader Billy laid out a much more pessimistic scenario – one in which Greece is the first of many dominoes to fall. Here’s a recap:
“Based on macroeconomics, technicals, cyclicals, geopolitics, and demographics, I would have to lean to scenario #3, wherein Greece is simply the tip of the iceberg given the trillions and trillions and trillions of dollars of fiat-based debt that exists around the world on a private, or, in this case, sovereign basis.
“With deflation gaining the upper hand despite all the money printing, QE, and associated rhetoric — as seen by the commodities complex deflating over the last year or so — the Greek crisis could just be the spark that sets off a major bond crisis and ensuing equity crisis. In fact, if you look at the capital markets from a technical standpoint, it looks like the Dow and S&P are putting in major tops as we speak.”
In other words, a ton of outcomes are possible here. I’ve recommended some pre-emptive steps for my subscribers to take, and I’ll have more depending on how the situation evolves.Â
Meanwhile, keep those comments coming over at the website. This link will let you sound off on the latest Greek developments.
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The wave of mergers in the health-care insurance industry shows no sign of ebbing. UnitedHealth Group (UNH), Aetna (AET), Cigna (CI), Humana (HUM), and Anthem (ANTM) have all been discussed as potential buyers or sellers.
The consolidation stems from a need to cut costs amid margin pressure brought about by Obamacare and a stagnant corporate health care environment. Some experts worry that the emergence of even-larger insurers would result in even-higher health care costs for consumers – the last thing Americans need right now.
So what do you think about all these health care mergers? The corporate earnings backdrop? Or yet another major sports scandal? Hit up the website and weigh in when you have a minute.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Come on now- today was “Bloody Wednesday” the day that my whole world would turn upside down including my portfolio. The desolation of the way of life as we knew it. Oh, I see, now we conveniently moved Bloody Wednesday out to September- give me a break will you?- George Stewart
If I had more fingers and toes I could count the number of “Bloody” days since…..
Hi!, Patrons Of Money & Markets Et. Al.:
FED. chief, Janet and her co-interest rate control freaks, obviously are members of an elite group controlling the destiny of their favored Wall Street and Big Banks accomplices, providing them with Fascist bailout recompenses etc.; for their failures and bribes directed at suppression of the US we the people Middle Class who through their inflationary/deflationary policies pay all the debts we know to be the NATIONAL DEBT etc.? Of coarse we the people know Mr. Larson through your insights into the various markets you monitor that you and Dr. Weiss will readily take the burden of OUR National Debt off OUR shoulders, just as soon as you earn enough money to use as a write off in paying down the National Debt in behalf of everyone of US…..right? Yep! And the dog would have caught the rabbit, if he didn’t stop to take a crap? Facing the National Debt once and for all has not happened even once in more than 100 years but instead has not been faced so the probability that we the people will ever pay it off in its’ entirety is zilch in my humble opinion and how about yours dear reader? All these market moves utilizing interest rates etc. monitoring how to play the Market Casinos is only shadow boxing with the Main Event which the National Debt whose litany stays suppressed decade after decade instead of being paid and doesn’t that show US something about the realities of the US economy? If OUR combined car payments, mortgage payments, insurance payments, cost of living expenses payments, fees and other innumerable expenses far outweighs OUR incomes, will these debts listed or not listed be paid? Don’t we remember how the mortgage payment goes for example; when some of it goes towards the principal while the majority goes towards the interest payment? Therefore, isn’t it absolutely obvious that there’s only ONE way and ONE way only we can get out from under all OUR debts is our ole buddy: DEATH but the FED., Wall Street, and the Big Banks don’t want US to gain OUR freedoms from continuing to pay as we the people have for 100+ years?
RUSS SMITH, CA. (One Of Our Broke, Fiat Money Corrupt States)
resmith1942@gmail.com
Maybe Greece should Consider crowdfunding. It has worked for so.many groups. Maybe it would work for Greece too.
What about selling an island to the European Common Market to cover debts. Corfu comes to mind as it is the closest to western Europe and has its own mini economy. It has been a British colony for years as well as European contact through invasions from Rome, Venice, Italy, Bazantine, France and Germany. The locals have a bit of oomf.
George & Russ as everyone can see your disappointment . Like all of us we need truth. If you are bold enough take this advice these gentlemen are the very Best Advisor’s in the world. Yes the “Bloody Wednesday” is upon us But it going to begin on TRIPLE EVE of what people call Halloween. sounds more bloodier anyway. October 2015 the Whirlwind month of the Year. Get Ready Get Ready… But watch September bonds “see you later” investors wanting better yields…Regradless if this is the reason why the Federal Reserve WILL increase its rate on October 28th 2015. It does not matter!!! The TRUTH IS IT WILL BE the 28th of OCTOBER 2015. Whatever you want to CALL,IT.I call it TRIPLE EVE ” BLOODY WEDNESDAY” (per Mike) OF What PEOPLE Call HALLOWEEN !!. Bloody and SCARY..If you want to make money play now for your futures.. Mike Larson will be correct..
The only Bloody Wednesday this year will be when Mary shows up with the Vodka and mixers.
Wait for it…..
Wait for it….
BOO !
Why do we let one person (Janet Yellen) control the markets ? The ideas may be a consensus, but what if she goes off script and says “higher interest rates” or “never a increase in interest rates” ? The markets react to whatever she says.
Why do we allow “analyst” to upgrade or down grade stocks based on their opinions without justifying (backup info) or name who is responsible for that decision (full disclosure)
These people control America…but who controls them ?
Obama
Don’t you mean the Koch Bros. ?
Not exactly germane to the subjects, but a new Gallup Poll of the confidence of the American people in various institutions may be revealing. Only the military and small business gained confidence among average people – all other institutions declined in percentage of confidence:
Current % Historical Avg. % Change
The Military 72 68 +4
Small Business 67 63 +4
The Police 52 57 -5
Church or Organized Religion 42 55 -13
The Medical System 37 38 -1
The Presidency 33 43 -10
The Supreme Court 32 44 -12
The Public Schools 31 40 -9
Banks 28 40 -12
Organized Labor 24 26 -2
Newspapers 24 32 -8
The Criminal Justice System 23 24 -1
Big Business 21 24 -3
TV News 21 30 -9
Congress 8 24 -16
Notice that the three branches of federal government, religious institutions and banks were the biggest losers of peoples’ confidence. Public schools and media came right behind them.
I wrote these figures out in columns, but the system closed things up, so imagine columns for the two percentages and the change numbers.
the FED policy is the same it has been for the last 5 years-NO MEANINGFUL RATE HIKE. To raise interest would be to bankrupt the Federal Gov’t which would be paying interest on 20 Trillion in debt. Even a 2% interest charge on 20,000,000,000,000 would be 200BILLION in interest alone-not even principal payback. The federal deficit would be increased 200billion overnight=ruin. So, no rate hike.
Good point!!
On second thought, make that 400 BILLION in interest!! – 400 billion added to the debt!! Are you listening, Janet?
By the way, while we are worrying about Greece and the Euro, the BEA came out with second estimates for first quarter GDP: Down .7%. Even less money to spread around. Are you listening Mr./Ms. politicians?
Yellen thinks inflation is quite subdued and the unemployment rate is improving. She apparently has not been shopping lately as clothing, food, and fuel prices have surged this year and the true unemployment rate is really close to 10%. The government is “cooking the books”.
Not only is the government “cooking the books”, but our Congresspeople, who are supposed to be the population’s guardians in government, are paying no attention. No wonder only 8% of people still think Congress is doing a good job. That 8% must be mostly from banks and big business.
Again sadly Bob you are right but they will increase rates on Triple Eve What People Call Halloween. 28th ,October 2015.. Yes standard of living will decline much in a few short years America will not be same . Even though The new president starting in 2017 will make the changes many will not like it but he ( again he ) will be doing the right thing for America. The United States of America must plan a new start now. Because the banking system will change in the near future … The Euro will see its final days in 2020. America when will you see yours? Many breakthroughs tech. energy , a some great discoveries energy ,and medical shall be revealed soon that will solve debts over time. for America (under a new Banking System). Remember Never say Never this is America..Lets do the right thing. It is easy to do a bad thing who really wants that..not a TRUE American lets work for it…..One day I will reveal something that will SHOCK the America People. It is about WHERE or WHERE did CHINA get all the MONEY USD.. STORY of THE CENTURY. Revealed in a meeting in Hong Kong I was in some years back. HOW DID CHINA get all this MONEY? To Build cities with nobody living in them.. IMF, World Bank UN, Chinese Gov.and Federal Reserve What did they do HMMMM?
Greece is the perfect example of a people that have been victimized for too long and they are not going to take any longer.
Other government would be smart, to look over their shoulder, as they are next. They rare flat out too blind to see it.
Another angle on the Greek crisis: The real fear here could be Greece leaving the Union and nothing bad happens to them. The other members on the verge of default would then be encouraged to do the same and The Union crumbles. It’s not like Federalism hasn’t failed before in Europe. The Soviet Union, Yugoslavia, and the Czechs fell apart. The real loser would be the USA as we lose our biggest trading partner for at least a while.
I THINK THE PRESS MEETING TODAY WAS NOTHING BUT BS…..ALL THE OLD LADY FROM BKLYN SAID WAS MAYBE SHE WELL RAISE INTEREST RATES SOME DAY SOON …..IF THINGS CHANGE…GEE WHAT A COMMENT……& MAYBE DAY WILL COME AFTER NIGHT….MAYBE
Anyone who says inflation is low hasn’t bought eggs at their local grocery store recently. When Bill Clinton took gas and food out of the CPI, the whole thing became a big lie. The reality is there is no such thing as being “a little bit pregnant”.
I notice that no one is considering lowering taxes to boost business and investment in human resources. My little company is coming up on year end when we are forsed to drain all our profits out of the company and pay it out in bonuses to avoid double taxation. Every year I do everything possible to build some capital for a rainy day or to have enough of a cushion to imagine hiring another employee but it is slow going.
Bottom line, if the government could implement a way to retain some earnings we would get an increase in business growth and hiring. The majority of jobs are in small businesses who have the same problem I have. I am afraid the socialist agenda will not permit such a practical solution. Can’t help out those rich businessmen (who hire people).
I should know why inflation is good and the Fed is worried that it hasn’t met it’s target. But to me it is common sense that my 2 bucks should be worth 2 bucks next week.
Common sense has no place among the economic theories embraced by academicians in government.
I really must laugh every time a Fed meeting takes place in front of Congress. The Fed is controlled by the big money cartel and just goes through the motions to make it look like congress is in charge. She talks low inflation tell her to shop in the real world its there in spades. If she ever told the truth about the US economy it would really collapse out in the open. Who benefits from these low interest rates why the government of course they are the biggest borrowers. Trickie Dickie must be rolling with laughter as he is the guy that started this whole mess. That great savior Romping Ronald Reagan is not the saint he is portrayed he just help extend the mess. After he finished with the air traffic controllers US labor just kept sinking into an abyss of Republican labor strangulation. Just look at the labor restrictive legislation Republican govenors are passing in most states. How can the voters be so stupid.
The Fed does not have a clue: They should have raised retes long ago and they didn’t.
Now with negative 1st Q Gdp and very low inflation and wage growth, rates hikes are a nightmare and the fear of repeating the infamous mistake of the mid ’30s is high . I guess they will decide on a couple of small hikes, only to have room to cut rates on the occasion of the next financial trouble in the US or abroad.
I agree with reader Ken and reader Billy that Greece’s hard stance, not backing down may be due to having an agreement that Russia would step in and stabilize.
Financially Greece is just a drop in the bucket without much clout. If they leave the EU it would cause a ripple, not a wave financially for the EU. The worry I think is the domino effect. Other countries might think its a good idea to default on debt. Greece;s left wing government has been mirrored recently in Spain, where recent local elections were a landslide for the radical left. I bet Russia is keeping a watch on this.
Another major problem of a Greek default is massive immigration especially to other UE countries. The financial problems cause a huge social upheave.
That said Greece needs to take responsibility and stop blaming everyone else for their problems. Their financial crisis is of their own making. Will a last minute deal be reached.?…probably, unless their Ego gets in the way, but I’m hoping common sense wins the day
The Greeks would sell one of their islands to Russia who would be able to build a base there and Russia would be able to expand their sovereignty into the Mediterranean. The us and Europe would protest and provide the money so it would not happen.
Anybody but me notice Larry wasn’t here this week?
I watched the 1996 documentary “The Money Masters” yesterday. If you haven’t watched, you should. Greece’s dilemma? the slavery of “free” money.
Why would anyone listen to this yokel after his predictions of bloody wednesday have been so very wrong.
Mike: I have sold all of my short and long term bonds. What these so called geniuses at the Fed don’t realize is that the problems in our economy are structural, not cyclical. These structural problems, which are self inflicted must be addressed by the President and Congress. The structural problems are:
Fiat money
Mike: I have sold all of my short and long term bonds. What these so called geniuses at the Fed don’t realize is that the problems in our economy are structural, not cyclical. These structural problems, which are self inflicted must be addressed by the President and Congress. The structural problems are:
1Fiat money
2 Excessive taxation and regulation
3. Excessive litigation
Rather Inflation than deflation (stagnation) Look at Japan over the past twenty years. Bridges and roads to nowhere.
Here’s a way to solve the Israeli problem with their many non – Jewish neighbors. Give those 5 million + non – Orthodox Jews Atlantic City, and maybe all of Atlantic City county in New Jersey. They are such a talented people that they would almost immediately become a posititve for both the New Jersey & the U.S. They would fit right in with their Jewish brethren in the Mid – Atlantic states, they would be further removed from the terrorists, and the moderate neighbors of Israel would have less to complain. I don’t have an answer as to who get all that developed Israeli infrastructure!
The Catholics moved their headquarters to Rome 2000 years ago. Time for the Jews to move to America!