The Federal Reserve Reconsidered

Summary

This month’s Fed rate decision is easily the most anticipated, analyzed and discussed since the financial crisis. The Fed has said it is ‘data dependent’, that economic conditions will determine its policy. That statement is untrue, or rather, it is true only at the extreme. If the U.S. unemployment rate was 7 percent or non-farm payrolls had averaged 100,000 for the past two years then data would indeed determine policy and there would be no rate hike. But that is not the case. American economic data can justify either a rate hike or a continuation of the zero policy. The Fed’s decision will not depend on data but on its view of the outcome. What are the likely effects of a 0.25% rate hike? How much of the effect has already been priced into equities, commodities, credit and currency markets? Will a single quarter point increase followed by a long hiatus have any appreciable impact? Do the distortions of zero rates outweigh the benefits? Join us for a unconventional view of the Federal Reserve decision.