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Markets Ignore Fed’s Bullard One And Done Admission – Ep. 205

  • The odds of a  December rate hike continue to ratchet up above 70%
  • We had a parade of Fed officials, most recently again today coming out and talking about why a December rate hike is a good idea, probable, possible, appropriate
  • You name the adjective, some Federal Reserve president, governor is discussing it
  • The markets are ratcheting up their expecations
  • The dollar index continues to move higher, we hit about a 9-month high today
  • We got above 99; but we didn’t close there, in fact the dollar index managed to close down a notch
  • Interestingly enough, gold had a pretty strong day today, we had about I think we’re at $12.73
  • Even to the extent the FOREX traders are worried about a December rate hike, the gold traders don’t seem to care about how a rate hike might impact the price of gold
  • This says either the gold traders don’t believe that a December rate hike is coming, or they’ve correctly concluded that even if the Fed does raise interest rates in December, it’s no big deal
  • It’s too little too late to be a negative for the gold market
  • The Fed is going to deliver far less than it promised when it comes to rate hikes
  • In fact the most interesting comment from a Fed official came last week from St. Louis Fed President James Bullard
  • He said that the Federal Reserve only needs to nudge interest rates up by 25 basis points
  • Right now, the official rate of Fed funds is between .25 and .50
  • It used to be between 0 and 25
  • I think where we actually are right now is 38 basis points
  • So if we moved up 25, at least these are the numbers Bullard is throwing out, we’d move up to 63 basis points for the Fed Funds Rate
  • Which is just barely above a half point
  • He says that’s all we need to do is nudge it up to 63 basis points, and that’s it – we’re done
  • He said, “We need to do it in December, but then that’s it, interest rates are going to stay really low for years.”
  • He’s talking 2 or 3 years or maybe even more of ultra low interest rates, despite whatever is happening in employment, and inflation
  • This is all we need
  • Nudging up by a quarter basis point and we’re done
  • I was surprised, to be honest, that we didn’t get more of a reaction to this admission by Bullard that the next hike, if it comes in December is the end of it
  • If that’s it and then we’re on hold for years
  • Sometime, during that period of time, we’re going to find ourselves back in recession
  • Even if we’re not in recession now
  • Even if this so-called recovery is in its twilight
  • Remember this is the 3rd longest recovery of the post-war era and it is the weakest recovery – ever
  • And, of course, it has the most stimulus
  • So despite having the most stimulus, it’s the weakest
  • Clearly, it’s going to run out of steam
  • So if the Fed does in fact raise rates ever so slightly in December and then say:
  • “That’s it for now, we’re just going to wait”
  • What’s going to happen is, we’ll be back in recession
  • If Hillary Clinton becomes the next president, and it’s looking more and more likely that that nightmare will become a reality
  • If she is, she will try to stimulate the economy
  • Look what happened with George Bush
  • When George Bush was initially elected the first time, he inherited the bursting of the dot com bubble