There has been much speculation lately on the Federal Reserve and its ongoing tightening policy. If you were to only read mainstream economic news you would think the Fed had already reversed course and “capitulated”, but this is not the case. The Fed continues to hold interest rates at their neutral rate of inflation while also moving forward with asset dumps from their balance sheet. Nothing has changed since December/January when the Fed first made minor changes to its public statements hinting at “accommodation”.
By leaving such wording completely ambiguous and refraining from any specifics, the central bank has allowed the media and the investment world to assume that the phrase changes can mean whatever they want the changes to mean. In other words, the Fed has bamboozled the mainstream into projecting their own fantasy outcome. Meaning, they believe that the outcome they desperately want (near zero interest rates and QE4) is the outcome they are going to get. Not only that, but they also think they are going to get it all very soon.
In the alternative economic media, I have noticed that there is also a presumption that the Fed will revert back to stimulus measures at any given moment. In fact, I have heard predictions of Fed rate cuts every month for at least the past seven months. And, each time the Fed doesn’t cut rates, the same analysts argue that “this time was close and next month is certain.”
To be fair, many analysts are basing their assumptions partly on the current financial reality. They are aware of factors that the average person is mostly oblivious to. Even now in the wake of swift declines in almost every sector of the economy there are still economists and portions of the public arguing that we are in the midst of an economic renaissance.
…click on the above link to read the rest of the article…