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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (14341)	9/19/2015 10:19:56 AM
From: Goose94	Read Replies (1) \| Respond to of 202700

The Federal Reserve-Created Mess The Federal Reserve thought that it was going to calm markets by keeping short-term interest rates constant. The behavior of the stock market, as well as other markets, since investors read the Fed press release as well as heard Fed chair Janet Yellen has apparently increased concern. The Federal Reserve is going to have to get its act in order and work to stabilize markets and not become an engine of greater "financial and economic instability". Around 2:00 pm, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System announced to the world that the Federal Reserve was not going to change its target range for the Federal Funds rate. The Standard and Poor's 500 stock index, which was around 2,000 at that time, rose to about 2,019, an increase of about 1.00 percent, by 2:45 pm. Unfortunately, by 2:45 pm, investors caught on to what was behind the Fed's decision. Internally, the Fed was presenting a picture of the future that was worse than what the US economy had experienced over the previous six years. This picture indicated that for the next four years or so that the United States economy would only grow at a little more than 2.0 percent, and although inflation would pick up after the recent decline in energy and other commodity prices, the Fed did not expect inflation over this time to go above 2.0 percent. Furthermore, the Federal Funds rate was forecast to rise to 3.5 percent, even though the economy was expected to continue to stagnate and loan demand was nowhere in sight. Investors were sorely disappointed in the Federal Reserve performance. At around 8:15 am this morning, the S&P 500 stock futures were down to below 1960. The headlines in the "Money and Investing" section of the Wall Street Journal this morning read " Stocks Pan Fed's Lack of Action." Coinciding with the decline in stock prices, the value of the US dollar fell in the foreign exchange markets and the longer-term government bond rate, which had been rising, recently fell. These movements continued into Friday morning. The financial markets, I believe, had been expecting that the Fed would hold steady on interest rates. I don't believe, however, that investors anticipated such a wimpy showing by the Fed. The market reaction seems to be one of disappointment in the leadership of the Fed. The leaders are just giving investors little or no comfort in their ability to analyze the situation and to compose some coherent plan for moving forward. Well known financial expert Mohamed El-Erian writes in the Financial Timesthis morning that if Federal Reserve officials do not get their act together then "the Fed risks finding itself in a cul de sac that, in itself, would risk transforming it from a volatility suppression machine to being a source of financial and economic instability." The problem is that the Fed has created greater uncertainty about the future path of interest rates and its policy. Analysts have been amazed at the rising stream of debate and dissension that has arisen over the past nine months or more concerning when and by how much the Fed would raise short-term interest rates. About all the Fed has achieved with its current performance is to cause the uncertainty and dissatisfaction to continue. And, this will help nobody but the day-traders that live off of volatility. Yes, there is a lot of turmoil going on in the world today and there is a lot of uncertainty that accompanies this turmoil. The problem is that the Federal Reserve has only added to the chaos and cannot avoid the criticism that it is receiving about its part in the mess we see in front of us. For one thing, the emphasis upon providing markets with "forward guidance" has been a huge mistake. For one thing, how much faith do you put in the Fed's forecast out two to three years? Personally, I don't have much faith in their projections for three months and I think that most people that work in financial markets would agree with me on that. The Federal Reserve was created to help banks and financial markets achieve greater stability, first against seasonal swings in agricultural loans, and then against short-run bank needs for liquidity. It is too bad, I feel, for the Fed now to become an engine of "financial and economic instability." In this, I agree with Mr. El-Erian. John M. Mason