Fed Up Friday: Sept 10 – 16

If this week’s any indication, it seems as if the Fed is a divided house. Former dovish members are now suggesting tightening while others want to stay the course of QE and low interest rates.  What’s more, the Fed itself is likely to become a political football if Donald Trump has his way. The Republican presidential nominee took aim at Fed Chair Janet Yellen this week, saying she was a puppet for Obama. All of this and more in this week’s Fed Up Friday.

Fed President Rosengren Sends Markets into Tailspin

Late last week, Boston Fed President Eric Rosengren suggested the time for a rate hike was getting closer and delaying could dampen economic gains. The market reacted with a near 400% decline in the Dow. As we reported, Rosengren’s new policy shift works on the assumption the economy has improved, but the facts say otherwise. It’s a phenomenon we are calling “bad data denial.” The Fed tends to overlook actual bad data while claiming to be data dependent. We see less denial and more of a bluff.

Brainard Says No Rate Hike, Economic Challenges Still Significant

As if the confusion coming from the Federal Reserve couldn’t get worse, this week we heard from another high-ranking official, Fed Governor Lael Brainard. The governor’s words sent the markets rallying after she suggested the lack of full strength of the labor market makes “the case to tighten policy preemptively less compelling.” Many investors were looking to Brainard for a sign of which way the Fed was leaning on a rate hike move for the month.

According to Reuters, Brainard is looking for a “stronger trend in U.S. consumer spending and evidence of rising inflation before the Fed raises rates.” The governor should ask the average American citizen if she needs evidence of rising inflation.

Trump Accuses Janet Yellen of Being Obama’s Money Puppet

In a phone interview this week on CNBC, Trump claimed Fed Chairwoman, Janet Yellen, isn’t “data dependent” as much as “Obama dependent”. The Republican presidential nominee stated Yellen “does what Obama wants her to do”.  The remarks came in the context of a question on low interest rates. Trump went on to say the Fed’s low-interest-rate was building up a “false stock market.” His main point is that those who did the right thing – saved their money and cut down on debt to protect their money – were the ones getting punished with low interest rates. Trump is obviously listening to Peter Schiff’s podcasts.

Schiff Radio: Fed Cavalry Charges to Market’s Rescue

This week, Peter Schiff weighed in on the contradictory comments from Fed members. Peter explains the precarious situation the Fed has built for itself. QE and low interest rates are creating economic bubbles. The Fed wants to get everyone drunk on easy money but then wonders why everyone yells when they want to take the punch bowl away.  Here’s a notable quote from Peter:

It almost seems like whenever [the Fed] discusses the possibility of a rate hike, they’re really launching a trial balloon. They want to gauge the possibility of a rate hike and then if the market kind of shrugs it off, or ‘blesses’ the rate hike the way it did last year … It keeps interest rates low to prop up the phony economy, but maintains a rate hike narrative so the bubble does not get out of control. The minute they start talking about raising rates, the market starts to go down and that’s something they are really afraid of.”

All Eyes on September 20 for FOMC Meeting

The schizophrenic Fed we saw this week is just the prelude to next week’s meeting.  That’s when the Federal Open Market Committee announces the US Federal Reserve’s decision on interest rates. We’ll finally have real data and a final decision. No more speculation about what they’re actually thinking. But with the election coming, bad economic data from August, and a general lack of consensus from its members, a rate hike seems unlikely.

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