Tuesday, November 24, 2015

Yellen Continues To Call For Gradual Rate Hikes

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Hints - speeches, minutes, and comments directly from Yellen suggests that a policy of gradual rate hikes in sympathy with market forces crushing US pension funds and savers will likely be adopted at the December meeting. FedWatch (Located in Feeds Column), a tool that allows market participants to view the probability of an upcoming policy change by the Fed, sets a 74% probability of December rate hike. The probability of January rate hike currently stands at 9%. This opposes international pressure to hold interest rates near historic lows or adopt negative interest rates to stabilize failing dollar-denominated debt burden outside the US.

An new era of uncertainty (rather than transparency) at the Fed could alter its 'official' communication and/or policies without notice. As Yogi Berra would say, the Fed's comments only matters until they don't. Investors will recognize this new era as increasing volatility in all markets. A multi-year cycle from low to high volatility (green arrows), the flow of energy from an area of high to low concentration, suggests this will happen regardless of the Fed's communication tactics (chart).

Market participants and headlines, however, will blame the Fed. Readers will ignore them and follow the cycles.

Chart


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Headline: Yellen defends Fed policy, calls for gradual hikes

Federal Reserve Chair Janet Yellen on Monday argued for gradual rate normalization, and called an interest rate hike "appropriate" if central bank officials see progress toward labor and inflation goals.

Responding to an open letter from consumer advocate Ralph Nader, Yellen defended the Fed's accommodative policy, contending it helped boost the job market and asset prices in the wake of the global financial crisis. Late last month, Nader criticized near-zero interest rates, claiming they hurt savers and burdened people on fixed incomes.


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Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.