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What Happens If The Fed Doesn’t Capitulate On Interest Rates?

What Happens If The Fed Doesn’t Capitulate On Interest Rates?

In the past stock markets used to rely on the innovation and profit reports of individual companies, and while there were sometimes all encompassing events that would push equities in one direction or another, in the last decade there has been only one factor that ever really matters:  The Federal Reserve.  

The central bank has positioned itself as the ultimate arbiter of market rallies and corrections.  In fact, most of the world is now placing all their investment bets on a single hope, that the Fed will capitulate on interest rate hikes, ignore the stagflation crisis and ramp up the printing presses once again with wild abandon.

This is the sad state of most markets around the world and American markets in particular.  Investors have enjoyed what amounts to a free ride for more than a decade based on the simple premise that the Fed will “never” allow stocks to crash again.  This assumption is predicated on the idea that the Fed actually cares about the continued stability of the markets.

After the latest Fed interest rate hike the speculation mills are swirling that the central bank will back off of rates as soon as November and refresh the easy money punch bowl.  But we need to consider a question that almost no one is out there asking:  What if they stopped caring?  What if they never cared and stimulus measures were actually meant to achieve a separate agenda that is now finished?  What if the Fed doesn’t capitulate?  What is they just keep hiking?

The original rationale given for rate cuts and QE measures was to offset wealth destruction caused by the 2008 credit crash.  The scheme was NOT supposed to continue onward with new stimulus every year or every time stocks lost 10%-20%.  Yet, that is exactly what happened…

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