The Fed Speaks Out of Both Sides of Its Mouth

Western Banking System Is Totally Broken, Totally Insolvent, Totally Corrupt

The Fed Speaks Out of Both Sides of Its Mouth by Dennis Slothower – Outsider Club

A number of Federal Reserve policymakers were marched out this week to give opinions about monetary policies following the most recent action of the Fed.

New York Fed Chief William Dudley argued in a speech that he is worried that the jobless rate will fall too far, causing a tight labor market and forcing inflation higher. Dudley believes the Fed should continue to raise interest rates. His talk caused the U.S. dollar to rally, undercutting the oil market.

Chicago Fed president Charles Evans delivered a more dovish outlook, arguing the Fed should hold off further rate hikes until the end of the year.

Boston Fed president Eric Rosengren raised the issue that “monetary policy is less capable of offsetting negative shocks when rates are already low”, implying the Fed wants higher rates, so that when a recession does develop it has room to lower them again.

Right after the Fed raised interest rates, Goldman Sachs suggested the Fed will hold tight in September and not raise rates but will instead begin tapering its balance sheet as it announced and wait until this December before raising them again.

Consequently, the CME now gives the probabilities of a rate hike in September only a 12.8% chance and a 40.3% chance in December.

Between four rate hikes since December 2015 and plunging oil prices, coupled with sinking commercial and industrial loans fast approaching zero, we may start to see evidence of an emerging recession develop by the third or fourth quarters.

Certainly, the Citigroup Macro Economic Surprise Index is warning us a very big surprise is coming our way!

us macro surprise index

What this index is revealing is that while economists are adjusting expectations downward, the data has been coming in far worse and at a faster pace, while the stock market isn’t adjusting for it. When the money supply is plunging, the economy is going to contract and I figure with another rate hike this disparity is only going to get worse.

Mixed Market as Senate Delivers Health Bill

The stock market traded basically flat towards the end of the week, which is a bit of surprise given the announcement of the long-awaited health care bill. (Buy the rumor, sell the facts?)

Lawmakers released a “discussion draft” of the long-awaited health care bill aimed at repealing and replacing Obamacare.

The senators will now have a handful of days to discuss the bill and decide whether to support or vote against the bill. Naturally, the Democrats have blasted the bill, so the question is whether McConnell can get enough Republicans on board with so little elbow room, as he can only lose two Republicans and still pass the bill.

Four conservative Republican senators announced Thursday they oppose the bill in its current version as written. Conservative Senators Rand Paul of Kentucky, Ron Johnson of Wisconsin, Ted Cruz of Texas, and Mike Lee of Utah appear to be politically posturing themselves to bargain makers — so we’ll see where this goes before the 4th of July.

Oil prices are now down -26% YTD on the Federal Reserve’s three rate hikes. On Thursday, the lows of last November of $42.20 were breached, suggesting we may yet see a test of the $39.19 lows of August 2016 soon.

70622-gasoline

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Outsider Club

Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.