In just a few hours, the Federal Reserve will have its first policy meeting of 2017. It’s somewhat incredible how little attention it’s getting, particularly given that it wasn’t so long ago that these meetings would be getting ALL of the attention. These days, if a story isn’t linked to President Donald Trump (President Trump- still hard to comprehend, but I digress), then it’s not a story at all. What’s even more incredible is that today’s Fed meeting could be the most important one in at least a decade.
For anyone who needs a refresher, the Federal Reserve policy meeting lost its substance early in the Ben Bernanke era, when the housing crisis of the last decade gave Ben Bernanke the excuse he always dreamed of, to drop “helicopter money” on the people, with zero percent interest rates. What was initially sold as a temporary emergency measure turned into official monetary policy for nearly a half generation. His successor and current Fed Chairwoman, Janet Yellen, was all too willing to keep it in place until recently, with only one measly interest rate hike prior to the shocking election, back in December 2015. (She probably even regretted implementing THAT one.) Nevertheless, the financial community hung onto every word that came out of these meanings, pretending that they gave some indication as to how close the central bank was to ending this near-zero interest rate environment. Though the words were altered from time to time for effect, the ultimate answer about when it would end was always some variation of, “Not right now.”
That appeared to have possibly changed last month, with the second hike of Yellen’s tenure shortly after the election results came in. Whether this was a change in direction or just an isolated incident, will be seen tomorrow. Nearly everyone is betting that the rates will hold as they are, but I’m not so sure. Then-candidate Trump all but challenged Yellen to raise them, railing at the phony economy- prior to subsequently taking credit for the stock market rally once elected, of course- and claiming that rates had been suppressed for too long. (At least he got THAT one right.) Surely deep down inside, and perhaps NOT even all that deep down inside, Yellen knows that this is a financial bubble that is LONG overdue for popping. What better time to have it happen then with a President she surely does not support. That’s not to say it would be PURELY political, but given that the man himself practically DARED her to, she now has the cover she needs for herself to take care of it. It’s far from a sure thing, but if I were a betting man- IF, IF, *ahem*- I would bet that rates go up tomorrow.
Stop me if you’ve heard this one before…Around 2 PM Eastern Time, you get “breaking news” that the Fed will not be raising rates. Stock gyrate wildly for a few minutes, followed by a rally-inducing statement from the Federal Reserve governor, which goes something like this- ‘While the economy has strengthened, we need just a LITTLE BIT more time to confirm the trend, as pockets of weakness still exist. Rate hikes are right around the corner- just not quite yet!’ Sound familiar? It should, as we’ve heard this at nearly every FOMC meeting since the last crisis abated (at least on paper) at the end of the 2000’s. It happened again today, as Janet Yellen told us to hold up for the time being. But really- it’s coming!
Whether you agree with what the Fed is doing or not, it is truly remarkable how each time we hear this, the media report it like it’s the first time we’re hearing this. For those who need more concrete evidence, just go to Google, set the time range for 2013, and type in the keywords “Fed”, “rate hike”, and “sooner than expected”. Or, just look at screenshot attached to the right, courtesy of “Rudolf E. Havenstein” on Twitter.
For those who have paid attention to these repetitive Fed announcements since the charade began, it feels like Bill Murray in Groundhog Day- just living the same day, over, and over, and over. (And for bloggers, typing in similar posts, over and over and over again.) Well, enjoy it while it lasts, I guess, however long that may be. It seems like an eternity while going through it, but you’ll be waking up next to Andie MacDowelleventually!
Here we go again. In what became American tradition years ago, the Federal Reserve released minutes from its most recent policy meeting, lending the masses to think there is some real discussion on just how close the next rate hike will be. Taken at face value, we are supposed to think that it’s going to happen very soon, just as soon as they can get their hands on “more economic data” to confirm. It’s unbelievable- to paraphrase the show Archer- in the sense that I do not believe any of this.
The Federal Reserve, while never truly “independent” as their mandate claims, now spin things more shamelessly than elected officials- and given the insanity that we currently find ourselves in, that’s really saying something. What “more economic data” do these people need? We live in an era where we have more data than most of us know what to do with! For those not old enough to remember a pre-zero interest rate environment, or for those who have simply forgotten- seriously, it’s been one-third of a generation already- this was initially supposed to be a temporary response to the economic crisis of 2008. The crisis, at least on the surface, abated within 2 or 3 years. Then Fed-chairmen Ben Bernanke said the rates would be “normalized”, once unemployment fell below 6.5%. When we actually reached that point, though, the Fed changed their tune, stating there were other factors that went into consideration, even though 6.5% was the benchmark THEY STATED THEMSELVES!
But okay, let’s do it their way. If they want “more economic data”, how about the fact that the stock market has been skyrocketing almost nonstop the past 7 years? (The Dot.com bubble and subsequent real estate bubble, both viewed in hindsight as pinnacles of investment madness, each lasted about 5 years apiece.) How about the fact that in most real estate markets, prices have approached or even exceeded levels that in the previous decade, most people now claim- again, in hindsight- were clearly ridiculous? I was no fan of Alan Greenspan, but he was absolutely lambasted for leaving rates at 1% for 1 year, allowing the markets to overheat and ultimately crash. What in the world is the fallout going to be from having ~0% rates for 8 years- and counting?! Plus, even the watered down version of today’s CPI is running at 2%. By leaving rates at almost nothing, the Federal Reserve continues to punish savers, while rewarding those who pile on the riskiest, most overpriced assets. The hope is that they can continue to keep this thing going juuuust a little bit longer, assuring us that the case to raise rates is “slowly building”, to a point where they can finally return to normal- if anyone can recall what that even looks like anymore.
The idea seems to be that so long as the game keeps going, The Powers That Be can hold the whole thing together- a great idea from their point of view, so long as the endgame is nowhere in sight. Rest assured, though, there IS an endgame, regardless of whether anyone can see it or not. It just won’t be the Fed who comes up with it, because they will have lost all control of it at that point. But until that elusive day of reckoning when Wile E Coyote finally looks down? Happy “investing” to all!