ROHR COMMENTARY on Fed Interest Rate Decision
Wednesday, December 16, 2015 (late)
Fed’s ‘Normalcy Bias’ Burden
There are many other reasons why headwinds will be strong enough to present significant challenges to the global economy and equities in 2016. And in spite of Fed Chair Yellen’s assurances that inflation would rise on the back of a strengthening US economy, the Fed raising rates beyond Wednesday’s ‘liftoff’ from the longstanding ZIRP (Zero Interest Rate Policy beloved of Ben Bernanke) is problematic at best. [I have already explored this topic at some length in the Will 2016 be 2007 Redux? (‘Redux’) post on www.rohr-blog.com on Tuesday the 8th.]
And much of the problem with the seemingly still ‘gradualist’ rate increase view is that it doesn’t make sense. Not from the Fed’s projections, or in some ways even from the FOMC statement (in our lightly highlighted version.)
In the very minor first instance the 25 basis point hike will raise short term credit card interest rates to the consumer. And the banks have already made clear that in a global savings glut (see Redux on that), there is no incentive to raise deposit rates.
As also covered at some length in ‘Redux’, The Fed is trying desperately to restore a sense of ‘normalcy’. It hopes the public and markets agree. However, as noted previous, if getting back to ‘normal’ means the ‘new normal’ it is less than propitious. That could be an environment not capable of sustaining higher levels of consumer activity in the home of conspicuous consumption. And that is six years into the ‘recovery.’ If things fizzle now, it does not bode well for the global economy.
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