Monday, May 23, 2016

The Fed Will Raise Rates, Its Only A Matter of Time and Pressure

The Fed is trapped in the classic damned if you do, damned if you don't, paradox. The Fed, following market forces rather than the other way around, needs to raise rates to relieve the growing strain of iliquidity in pensions and insurance companies. If they do that, they'll be blamed for causing stocks to decline (at least temporarily) by those that incorrectly believe stocks and interest rates are inversely correlated. If they chose to keep interest rates low in support of government borrowing, will vanquish the majority of public pension funds to the boneyard of broken promises. This will break the back of confidence in the public sector.

Headline: El-Erian: Fed hike definite by September, probably in July

Mohamed El-Erian said Monday the market is still underestimating the chances the Federal Reserve will raise interest rates this summer.

The Fed has become part of the problem and "shouldn't be doing what they're doing, but exiting is quite hard. Now, they have a small window — a small window — to start normalizing, and I think they intend to take advantage of it," Allianz's chief economic adviser told CNBC's "Squawk Box."



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