"Paper money appears at first sight to be a great saving, or rather that it costs nothing; but it is the dearest money there is." This is the uncomfortable truth of the euro currency experience. As it seems, people in the euro area about to learn an old lesson: namely that unbacked paper money - which is what the euro represents - cannot be trusted.
"Anyone buying stocks based on confidence that the Fed has their back notwithstanding Wednesday’s action surely deserves the pounding just ahead. What Yellen had to say doesn’t even reach the status of babbling; it was flaming incoherence..."
While most banks are in no rush to pay savers and depositors more, or anything for that matter, they wasted no time in piggybacking on the Fed's rate hike by boosting their own Prime Rate. Here is a list of the banks that rush to increase their Prime rate to 4.00% as of this morning.
Much is at stake in today's Fed decision, where Janet Yellen is expected to raise interest rates by another quarter point, provide guidance on the pace of future rate hikes, and share its outlook on the economy and whether it is behind the inflationary curve. Here are the main things to look for in today's FOMC decision.
Since the election we’ve heard the rally in stocks characterized as a “Trump Trade” or a “reflation” trade. We think there is a really important element missing from this analysis that could change very quickly over the next several weeks.
"Inflation will soon become a main concern for investors... this will change the basic relationship between stocks and bonds and could set up the financial markets for severe turmoil, like in the late 1990s when the collapse of Long-Term Capital Management sent shock waves around the globe."
"Using the results from the Fed staff's work, and assuming that there results can be extended linearly, a recession that is half as severe would require the Fed to undertake a $1tn QE program in 2020."
Over the past few months interest rates and the value of the dollar have risen sharply, and monetary policy’s quantitative indicators have contracted. These monetary restrictions have worsened the structural impediments to U.S. economic growth that existed before the election and continue today...
"We would be very surprised to see a discussion of asset sales under Chair Yellen’s leadership, but a shift to more active management of the maturity of new Treasury purchases could be an option; shortening the duration of new purchases would quicken portfolio runoff once it begins." - Goldman Sachs
The world was reminded of the cozy relationship between The Fed and The Treasury again today as Janet sent Jack $92.0 billion of freshly ponzi'd net income for 2016 providing the federal government with an important source of funding. This, however, is down almost 6% from 2015 and despite a considerably larger balance sheet is the lowest remittance since 2013 due to doubling the handouts to the major banks to $12 billion last year.
Global markets begin the last full week of trading of the year in subdued fashion, with U.S. equity futures rising 0.1%, to 2,258.5, European shares decline, halting two straight weeks of gains, and Asian shares hitting a four-week low.
With 100% chance of at least a 25bps hike (and 10% chance of 50bps), this was perhaps the most 'priced in' of any Fed meeting ever, and this time the Fed did not disappoint, however where the Fed did surprise was its hawkish outlook, as it now expects 3 rate hikes in 2017 instead of 2 as of September.