The Fed Knows It’s Backed Into a Corner (Video)

All of the talk lately is about a Federal Reserve rate hike in June. In fact, in many circles, it has become a forgone conclusion. On Monday, Philadelphia Fed Bank president Patrick Harker said he could see up to three hikes before year’s end.

But Steen Jakobsen, chief economist and CIO of Saxo Bank, says if the Fed does move forward with a hike, it will be a huge mistake. He said the data the Fed is using to justify the rate hike doesn’t indicate an increase in economic momentum. In fact, Jakobsen argues the US economy continues to perform significantly below its potential. He believes the Fed is talking rate hike so they can cut them again.

As Fed is now communicating this willingness to hike despite these economic circumstances, it seems like that Fed is trying to manage something else, which in my opinion is the fact they want some ability to be able to hike rates now in order to take them down later. Basically the Fed knows – the Fed acts as if they are in a corner, and they’re trying to increase the amount of tools available to them.”

Peter Schiff made a similar point earlier this month on Fox News, calling it a “phony recovery,” and arguing that despite all of the data officials keep pointing at, the US economy is in a mess:

That is the next big thing – when the Fed has to capitulate and acknowledge that we’re back in recession, because that’s the last thing Janet Yellen wants to do.”

Highlights from the Interview:

“The Fed could be on the edge of making yet another mistake in terms of their predicted hikes.”

“Right now, the market is repricing the Federal Reserve’s action from basically no hike 2016 to one to two hikes. This has meant that the market has been under pressure. The dollar has seen some renewed strength. The reason we remain very skeptical and argue that you should be fading the Fed remains the same. What Fed has mistakenly has been doing right now is looking at the present improvement in economic data in the US as being an overall improvement of the momentum. That’s not the case. What we are seeing is we are coming out of the Q1 with very weak growth. This very weak growth is now being replaced with normalized growth, which means overall the economy is still performing significantly below its potential.”

“As Fed is now communicating this willingness to hike despite these economic circumstances, it seems like that Fed is trying to manage something else, which in my opinion is the fact they want some ability to be able to hike rates now in order to take them down later.”

“Basically the Fed knows – the Fed acts as if they are in a corner, and they’re trying to increase the amount of tools available to them.”

“Expect a volatile two to three weeks before the market and the Federal Reserve themselves come to the full and right conclusion that the US economy is still performing below its actual long-term trend.”

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