Wednesday, August 01, 2012

Fed pledges failure for two more years!

About 15 minutes ago the Fed announced no change in its current monetary policy. It predicted that very low short term rates will persist until the end of 2014.

As you know (or should know) very low interest rates are associated with periods of high unemployment and very slow economic growth. So the Fed has pledged to continue its failed monetary policy for two more years while doing nothing to promote a reduction in the unemployment rate and increased rates of economic growth. And this during a time when the rest of the government seems determined to drive the US off of a fiscal cliff!

Well things are what they are. The important task now is to see how the market responds to this bearish announcement from the Fed. Right now the S&P is holding above the low it made right after the announcement. I'd say that if it manages to close up on the day we will have the first bit of evidence that the market's technical condition is very strong and much higher prices lie ahead. A still higher close tomorrow would be even more convincing evidence of technical strength because the European Central Bank is scheduled to announce the results of its latest meeting tomorrow before the markets in the US open.

My own suspicion is that the S&P will put in these higher closes and if it does my view that the market is headed above 1400 will be reinforced.


Adrn said...

It's interesting how well the market anticipated the disappointing outcome.

It got sold yesterday and also today at 1380 just before the announcement.

Also, gold got sold yesterday.

pimaCanyon said...

Hi Carl,

Are you suggesting that the Fed should RAISE rates, that that would stimulate growth?

Are you suggesting both raising rates AND another round of QE?

pimaCanyon said...

How do you know that low interest rates are the CAUSE of high unemployment and low growth? Association does not imply cause.

What if the low interest rates are the RESULT of high unemployment and low growth? Then raising rates would at best have no effect and at worst slow down growth and raise unemployment even more.

beetlejuice said...

Carl, it doesn't worry you that Cu a leading indicator crashed lower today and the weekly chart looks horribly bearish with price just above the neckline of a very large head and shoulders pattern?

BullandBearWise said...

Carl, you sound surprised the Fed is doing nothing. What were you hoping they would do? Raise rates?

dcatlowpj said...

I think that Carl is talking "failed intervention" here, not cause and effect in a higher sense!

I absolutely agree that IF the Fed raised rates, that this would signal that a very stubborn money expansionist has seen some light that the economy is finally starting to strengthen. Carl finally said that what matters most is price discover and I agree.

Win said...


I'm sorry that not one of these loyal readers has understood your bias on monetary policy despite your many posts on that subject. Any way, today was not bullish but reaction to tomorrow's unemployment report will determine everything. The RUT has diverged massively over the past few weeks, and I am short big.

DP Johnson said...

WIN, I am short puts on the RUT!

That is, long.