{"id":15537,"date":"2015-12-21T13:42:10","date_gmt":"2015-12-21T18:42:10","guid":{"rendered":"http:\/\/olduvai.ca\/?p=15537"},"modified":"2015-12-21T13:42:10","modified_gmt":"2015-12-21T18:42:10","slug":"the-confidence-game-is-ending","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=15537","title":{"rendered":"The Confidence Game Is Ending"},"content":{"rendered":"

The Confidence Game Is Ending<\/a><\/h3>\n
Immediately after the Fed hiked interest rates last Wednesday \u2013 after sitting at 0% for 7 years \u2013 markets acted pretty much as one might expect. The Fed tightens monetary policy when the economy is strong so rising stock prices, rising interest rates and a strong dollar are all things that make sense in that context. I am sure there were high fives all around the FOMC conference room. Too bad it didn\u2019t last more than one afternoon. By the close Friday, the Dow had fallen nearly 700 points from its post FOMC high, the 10 year Treasury note yield dropped 13 basis points, junk bonds resumed their decline and the dollar was basically unchanged. Not exactly a ringing endorsement of the Fed\u2019s assessment of the US economy.<\/div>\n
\n

I\u2019m not saying the Fed\u2019s rate hike is what caused the negative market reaction Thursday and Friday. The die for the economy has likely already been cast and right now it doesn\u2019t look like a particularly promising roll. Raising a rate that no one is using by 25 basis points is not the difference between expansion and contraction. And a bit over a 3% drop in stocks isn\u2019t normally much to concern oneself with; a 700 point move in the Dow ain\u2019t what it used to be.<\/p>\n

The pre-existing conditions for the rate hike were not what anyone would have preferred. The yield curve is flattening, credit spreads are blowing out and the incoming economic data is not improving. Inflation is running at a fraction of the Fed\u2019s preferred rate and falling oil prices have been neither transitory nor positive for the economy, at least so far. The Fed is not unaware of this backdrop \u2013 they may not like it or acknowledge it publicly but they aren\u2019t blind \u2013 but seems to have decided the financial instability consequences of keeping rates at zero longer are greater than any potential benefit. A sobering thought that.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The Confidence Game Is Ending Immediately after the Fed hiked interest rates last Wednesday \u2013 after sitting at 0% for 7 years \u2013 markets acted pretty much as one might expect. The Fed tightens monetary policy when the economy is strong so rising stock prices, rising interest rates and a strong dollar are all things […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[11182,88,151,11183,7035,212,303,305,4512,534,723,753],"class_list":["post-15537","post","type-post","status-publish","format-standard","hentry","category-economics","tag-alhambra-investment-partners","tag-bonds","tag-commodities","tag-confidence-game","tag-currencies","tag-dollar","tag-fed","tag-federal-reserve","tag-fomc","tag-monetary-policy","tag-shale-oil","tag-stocks"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15537","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15537"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15537\/revisions"}],"predecessor-version":[{"id":15538,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15537\/revisions\/15538"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15537"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15537"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15537"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}