ROHR COMMENTARY Excerpt for MyTradingBuddy
Thursday, September 17, 2015 (pre-FOMC)
Might the FOMC try ‘something really different’?
As we have noted in our advisory analysis over the past couple of days, the Fed’s alternatives are not a simple binary hold steady or hike 25 basis points. And the real fresh twist available to the FOMC is in the rate decision first and foremost.
To best understand this it is necessary to review the pressures on the Fed from the various contingencies it needs to discount and what the market responses might be.
In order of importance (and in most cases at least tacitly related) they are:
1.) DO NOT upset the US economic and equities rally
2.) DO NOT upset the mainstream bond markets (especially govvies)
3.) AVOID any further extensive US dollar strength against major trading partners
4.) DEFINITELY AVOID triggering any further emerging markets or emerging economy currency weakness
5.) ALL THE WHILE appear to get out in front of potential future inflation…
6.) …and especially in light of jobs and wage growth, DO ‘SOMETHING’
And with global inflation readings coming down again, it would seem the case for ‘normalization’ of rates is still fairly weak. Yet that is all near term perspective, and the Fed does want to get to a bit of a more normal rate management position than the extended ZIRP (Zero Interest Rate Policy) instituted as part of Ben (Buzz Lightyear) Bernanke’s QE-Infinity program. Many are concerned that his 2006-2007 lax approach was partially responsible for the Housing and Credit Bubbles.
So what is a conflicted Fed to do?
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