Why the Yellen Fed Will Intentionally Remain Behind the Curve

Why the Yellen Fed Will Intentionally Remain Behind the Curve

fedI listened to Bloomberg Radio on Thursday, September 17, 2015 following the Fed rate decision, and it was clear to me that there is a lot of misunderstanding about the Fed and its objectives. Officially, the Yellen Fed has two mandates which are partially in conflict with each other: 1) to maintain price stability; and 2) to maintain full employment. The Fed has actually done quite well in satisfying number two above, although at a severe cost which isn’t often discussed in the media in which it is impossible to obtain a reasonable rate of return from a safe time deposit. As a result of not being able to get four or five percent from a bank account, and encouraged by the U.S. equity bull market which began in early March 2009 and which lasted for more than six years for most U.S. equity indices, many investors took their money out of safe time deposits and speculated with it into various risk assets. I use the word speculate instead of invest, because most of the people who took this action have no idea of the kinds of risks which they are taking with their money. In many cases, they have convinced themselves with the help of various advisors and analysts that they have been making prudent choices when exactly the opposite is true.

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true contrarian
Steven Jon Kaplan began www.truecontrarian-sjk.blogspot.com/ in August 1996. In February 2006, he added an update service several times per week, including intraday updates whenever purchases or sales are made in his own account. The basic concept is that the most extreme distortions from fair value occur when investors either crowd into or bail out of the same assets simultaneously due to emotional herding behavior, and thereby provide the best trading opportunities since such irrational distortions will eventually revert to fair value and beyond.
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true contrarian

Steven Jon Kaplan began www.truecontrarian-sjk.blogspot.com/ in August 1996. In February 2006, he added an update service several times per week, including intraday updates whenever purchases or sales are made in his own account. The basic concept is that the most extreme distortions from fair value occur when investors either crowd into or bail out of the same assets simultaneously due to emotional herding behavior, and thereby provide the best trading opportunities since such irrational distortions will eventually revert to fair value and beyond.

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