The history of forecasting important economic metrics by the Fed contains many examples of miscalculations when it comes to figures like inflation in particular. The stagnating inflation numbers of today’s financial climate in the US should come as no surprise to the Fed, and it probably does not, but that does not keep them from using it as an excuse to push an eventual interest rate hike further from the September date long-anticipated by financial markets. The longer this liftoff is postponed, the less likely any rate hike at all becomes. While some believe that conditions in the US are still too fragile to necessitate any action yet, fear to move today may mean further and more painful measures needed when the economy is truly in need. The half-hearted attempts at stimulating inflation have not worked well so far, with $3.5 trillion in easing unable to move inflation much, seemingly corroborating the idea that diminishing returns will exponentially diminish the value of further stimulus over time. Though effects any measures may have on the current economic.
Though some will quote the continuously rising equity benchmarks as proof of market expansion, the truth is that ballooning Central Bank balance sheets are more responsible for such reports and not actual comprehensive growth. For a clearer and more down-to-earth look into the health of the global economy, look towards bonds and commodities, both of which are being heavily affected by deflation. The stock market is the last place to go when an accurate temperature is required, as conditions in today’s market requires traders to be shortsighted and therefore driven purely on sentiment, pushing valuations to absurd levels. The Federal Reserve is playing an extremely risky game, as any long-term policies implemented now threaten to topple the high sentiment present in this already precarious asset class. The path to a solution becomes more obscured by the day, as a postponed rate means new policies also become more dangerous to the market. December may be the last time the Fed has the opportunity to normalize policy without risk of following the example of countries like Japan.
Expected Target Date for Rate Hike Pushed
Market Trends - 20/08/2015