• Tuesday’s podcast was titled, “Will She or Won’t She?” referring to whether or not Janet Yellen would announce an interest rate hike for the first time in almost 7 years
  • Today we got the official answer: “No.”
  • For the 54th consecutive time, the Fed has left interest rates unchanged at zero
  • What is even more amazing, in the Q&A immediately following the announcement, Janet Yellen admitted that she could not rule out the possibility that interest rates would stay at zero forever
  • A reporter asked her if the Fed may be trapped at zero forever
  • Among the excuses the Fed used was problems in overseas markets, which opens up a grab bag of excuses for the Fed conveniently explain why it is not going to raise rates
  • I said from the beginning the Fed has no intention of raising rates
  • They also mention that these problems may spill over into the U.S. economy
  • She also mentioned additional problems in the labor force: wages, people re-entering the workforce and more full-time jobs
  • That is not going to improve in the next three months, yet the Fed is still pretending that it could raise rates in October or December
  • Yellen is also no ruling out that the Fed could keep interest rates at zero forever, so who cares about what she won’t rule out?
  • Janet Yellen answered the reporter’s question by saying, ” We don’t think we are going to be in that situation, however I can’t rule it out.”
  • So the fact that she is not ruling out an October or December rate hike means nothing, because she also can’t rule out zero interest rates forever
  • What else does this tell you?
  • She is concerned that rates will be at zero for a long time
  • Janet Yellen believes that the Fed could actually keep interest rates forever
  • They won’t even stay at zero for the end of this decade because ther is going to be a currency crisis that forces the Fed to raise rates
  • The only reason the Fed has maintained the illusion of control for so long is that the market is believing them
  • When They figure what the Fed is really doing, then it is over with
  • Then the dollar will tank, creating upward pressure on inflation
  • They will have to raise rates; market will not give them a choice
  • Janet Yellen does not know this
  • Another reporter asked her if the Fed will adjust their policy if inflation gets to inflation sooner than anticipated
  • Yellen went out of her way to state that 2% is the target, but not the ceiling
  • I think the Fed does not have a ceiling, but the market does
  • Another interesting discussion was regarding the balance sheet
  • The Fed can’t start shrinking the balance sheet until they raise rates
  • Yellen admitted that since rates are still at zero, they are pushing back the time when the Fed will begin shrinking the balance sheet
  • If the Fed never raises rates, then it can never shrink its balance sheet
  • The Fed may never raise rates on its own volition: I know eventually they will have to raise rates
  • And then it will be a complete catastrophe
  • But everybody is still pretending everything is great, maybe the Fed will raise rates in October of December
  • Here’s another interesting development: the market was up all day but it sold off down 65 points. A pretty big reversal.
  • Ultimately the Fed will have to officially take rate hikes off the table
  • What kind of bad news will they need to do that?
  • We got bad news today: Housing Starts were significantly below estimates and the prior month was revised down
  • Bloomberg Consumer Comfort Index had its second lowest week in a year
  • The worst number that came out was Philly Fed – was expected to come in at +6, but actually came in at -6
  • The biggest miss in 4 years
  • Given all this bad news, the Fed, under normal situations would be lowering rates
  • I believe at some point we will see weakness on the jobs numbers
  • I also believe this holiday season will disappoint
  • The Fed has cracked the door for the possibility of QE4 by mentioning global market instability
  • The markets are prepared for a rate hike cycle; that’s what has devastated the emerging markets and commodities
  • Maybe Janet Yellen is being honest when she says she can’t rule out possibility of keeping rates at zero forever, because she can’t raise them
  • Meanwhile, Gold was up yesterday and today
  • The dollar was also weak on the day and the euro was strong
  • Yellen actually mentioned how the strong dollar
  • Currency speculators bought the dollar anticipating a rate hike
  • Then the Fed says, “The dollar’s too strong so we can’t raise rates”
  • Catch 22
  • The currency markets will reverse in a much bigger way
  • We are close to a big game change
  • This is just a pause before the next stimulus
  • The balance will explode
  • And there are emerging markets that want to unload their treasuries held to keep their own currencies from going up, but but now that they are low, they can sell the currencies at a profit in their own currencies
  • Who’s going to bid on the treasuries? The Fed! They’re the only ones dumb enough to bid