It appears that the Fed's cunning plan to hike rates so it can cut rates was just foiled once again.
Moments ago stocks have soared into the green for the day in an epic algo stop run as 'traders' weigh the words amid the FOMC Minutes. The crucial sentence is "The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s as-sessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks." This suggests the possibility of a monetary reaction (QE4) if external shocks occur even before they have had a chance to raise rates.
Here is a sample of the litany of FOMC notices that suggest that far from a rate hike, the US economy is more likely to see QE4 first!
Some participants also dis-cussed the risk that a possible divergence in interest rates in the United States and abroad might lead to further appreciation of the dollar, extending the downward pres-sure on commodity prices and the weakness in net ex-ports
* * *
The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s as-sessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks
* * *
a few participants observed that although GDP growth appeared to have picked up in recent months rel-ative to the first-quarter pace, the level of GDP re-mained lower than had been projected earlier in the year
* * *
a couple of participants were concerned about the outlook for consumer spending, noting that spending had been dis-appointing in recent months even though real income had already been boosted by the lower gasoline prices and the improved labor market.
* * *
a few participants were concerned that the further decline in oil prices that had occurred in recent weeks might continue to hold down energy-related investment. In addition, government spending was expected to add very little to growth in aggregate spending this year.
* * *
The ongoing rise in labor demand still appeared not to have led to a broad-based firming of wage increases... it was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation.
* * *
While the recent Chinese stock market decline seemed to have had limited implications to date for the growth outlook in China, several participants noted that a material slow-down in Chinese economic activity could pose risks to the U.S. economic outlook
* * *
considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation
It gets better:
Participants generally continued to anticipate that, with appropriate monetary policy, inflation would move up
But... didn't the St. Louis Fed just admit the US wasted 7 years on making the rich richer and boosting wealth inequality to record levels, while doing nothing at all for the economy?
And the puncline:
Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term and that the inflation outlook thus might not soon meet one of the conditions estab-lished by the Committee for initiating a firming of policy. Several of these participants cited evidence that the response of inflation to the elimination of resource slack might be attenuated and expressed concern about risks of further downward pressure on inflation from international developments. Another concern related to the risk of premature policy tightening was the limited ability of monetary policy to offset downside shocks to inflation and economic activity when the federal funds rate was near its effective lower bound.
Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.
Right, just like in 2010, 2011, 2012, 2013, 2014 and so on.
[6]
Market reaction: initial kneejerk lower to take out the downside stops, followed by a furious blast higher for the remaining stops.
Of course this could simply be an algo stop run, which fades momentarily alongside the last trace of Fed credibility.
