Wednesday, August 26, 2015

Investors Haven't Forgotten About the Fed

News
The Fed's plan to begin hiking interest rates in September (or the end of the year) seems undisturbed by weakness in China and US stocks. The Fed, facing a damned if they do or damned if they don't moment, realize higher interest rates are need to fight distortions created by an extensive low interest rate environment.

Bill Gross sums up the problem, the coming crisis, as follows:

The BIS is after all the central banks’ central banker, and if there be a shift in the “feed a fever” zero interest rate policy of the Fed and other central banks, perhaps it would be logically introduced here first. The BIS emphatically avers that there are substantial medium term costs of “persistent ultra-low interest rates”. Such rates they claim, “sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.”


Yesterday's late day selloff could be setting up a sharper, 1987 style decline into an October low. This possibility demands respect and patience from both sides of the trade.

Headline: Atlanta Fed’s Lockhart Says Fed Is Still on Track to Raise Rates This Year

Federal Reserve Bank of Atlanta President Dennis Lockhart stuck to his guns Monday, saying he still expects the U.S. central bank to raise short-term interest rates in the next few months, even as he acknowledged stresses facing the U.S. economy and financial markets were making the outlook less certain.


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