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The Fed has begun raising interest rates right on schedule as our computer Array projected the change in trend would come in 2022. However, while this uptrend appears to be headed into 2023, not that here too we have a Directional Change and a Panic Cycle. With this lining up with targets in so many markets including our War Cycle, it looks as if the Biden Administration is going to go down in history as probably the most inept ever in American history.
On March 15, the Federal Reserve raised its overnight lending rate by a ¼ point, moving its target range for Fed funds to 0.25% to 0.50% which was up from the previous 0.0% to 0.25%. Additionally, Powell warned that a total of seven more rate hikes might be in store this year. This would imply that the Fed’s overnight lending target range will return to the more normal 1.75% to 2.00% by year-end. In discussions with senior bankers, this will help restore profitability to savings and lending.
Interest rates are supposed to reflect a premium OVER inflation. If inflation is 20%, it makes no sense to lend you money at 2% for that becomes a guaranteed loss when the money is repaid. Because of the TV financial evangelists who have to attribute an explanation for every move the markets make, the old standby has been the market fell because rates are higher.
Higher interest rates most people think will slow the pace of economic activity and many still believe that higher interest rates will also send the economy into recession. The Fed raised rates throughout the Trump administration yet they called it the Trump Rally. Whenever we look at the markets objectively correlated to interest rates, we find that this is the number one market myth.
The argument has been that recessions follow rates hikes and as such, this is where the myth comes from which can be seen just by looking at the chart above. True, the dollar rise to record highs after the Federal Reserve raised rates to unprecedented levels in 1981. The exceptionally high rates caused capital to rush to the dollar and even the British pound collapsed to $1.03 by 1985. That braindead move by Paul Volcker in 1981, then led to the rise in the trade deficit which prompted the formation of the G5 at the Plaza Accord in 1985. Every mistake those in power create sets in motion capital flows which then led these people to come up with another braindead solution that sets in motion the next crisis - i.e. 1987 Crash based on currencies following the failure of the Louver Accord.
Those who always try to attribute the move of a market or the economy to a single factor will immediately point out that four of the last five rate hikes were soon followed by a recession. Hence, we will see the same again. I have written many times that I would never accept stated beliefs but tested them. When I gathered all the data, it became clear that the economy and the stock market NEVER peaked at the same level twice in history.
The true factor was expectations. If you think the stock market will double next year, you will pay 20% interest. If you do not think it will go up even 1%, you will not borrow at 0.5%. Yet we have central banks that try to manage the economy with Keynesian Economic Theory which has proven to be a complete failure.
Interest rates will rise but we have inflation created by the COVID lockdowns which has disrupted the supply chain. Now we have braindead people in the Biden Administration imposing sanctions and removing Russia from SWIFT. Russia is not just a major supplier of gas to Europe, it is responsible for all sorts of raw materials not to mention 30% of the wheat production. This is adding to the inflation because of SHORTAGES which was already set in motion by COVID. Raising interest rates with this type of inflation is just stupid.
The hypocrisy which emerges from the West in both geopolitical thanks to Neocons, the push to end fossil fuels for Climate Change which has destroyed the living standards in third world countries such as Pakistan and then adding Keynesian economics mismanagement, it is no wonder why we are witnessing not just Pakistan moving toward Russia, but many countries including Egypt and India. |
