Fed chief Powell just hiked rates for last time

Federal Reserve chief Jay Powell hiked rates a fourth time this year on Wednesday to 2.5% for the Fed Funds Rate. He also told reporters that the committee is looking at two additional hike in 2019, taking one prospective hike away for next year.

This is the classic overshoot by the Fed. Seeing inflation that’s not there, Seeing bogeyman that will never materialize.

In the face of a global trade slowdown as Europe falls into a rioting mess over socialist policies to curb emissions with higher taxes on fuel consumption and other government intrusions into the people’s lives.

The Asian market has been weakening for all of 2018 as demand for tech goods have cratered. Apple has little market penetration for its new iPhones as consumers say $1,000+ models are too rich. I’ll stick with my older model.

Tariffs — in an attempt to level the trade playing field — have rocked China after decades of favorable trading terms. No longer having advantages against domestic producers is producing a boom for US manufacturers.

So where are Powell & Co. looking for this bogeyman called inflation? Gas is trading below $48 a barrel, however you still see problems here in the US.

Fedex reported troubling results this week in their quarterly results. This in the face of allegedly growing online sales the trucking industry is moving less freight.

This pullback by the US consumer can be put at the feet of Powell & Co. since there jawboning and hikes have taken 401(k)s into the red for the year, which has Americans pulling back. The numbers for this will come out in early 2019.

I’ll put myself on the line today, this is the last rate rise Powell will oversee. It will go so horribly wrong in 2019 that the Fed will actually have to cut rates by September 2019. This will be because of how the global slowdown will affect US growth.

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More evidence Trump is fed up with Federal Reserve

As the US came off the eight years of Federal Reserve controlled economy during the Obama administration’s anemic efforts to grow out of the Great Recession.

In January 2016, I wrote the most viewed post in the history of this blog. It touched on what I called  The Greatest Transfer of Wealth in History.

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Both Powell and Q-Anon on hot seats

New Fed chief Jay Powell ends his first two-day meeting with a press conference Wednesday.

The market has a 90% expectation for a 0.25% rise in Fed Funds Rate to 1.5%-1.25% range. More importantly is Powell’s comments on the economy. Since the Fed is the 800-lbs gorilla in the government bond market, I don’t expect anything sensational coming from his comments.

Any policy changes will be on the edges as traders parse the statement for future moves.

The key to the statement is whether there would be 3 or 4 hikes this year. Powell in Congressional testimony has been perhaps overly optimistic on the economy.

I am on the record saying there will only be this hike for 2018, as Corporate America is addicted to cheap money to pump up share prices by borrowing cash to fund stock buybacks.

The steeping of yield curve — while very good for bank profits if they ramp up lending — increases current borrowing costs at a time of greater issuance to fund corporate tax breaks.

The Austin, Texas bomber killed himself in an explosion this Wednesday morning after a shootout with the police and FBI.

Interesting Q-Anon posted last night that the FBI opened a file on the entity because of the use of BOOMs in his posts and a possible connection to the bomber.

Q-Anon says it’s a ruse to cut off communications, but it will fail.

Yellen can't connect the dot plot

Janet Yellen in her press conference Wednesday said that the US GDP for next year and 2018 will be lower than previously expected, yet all is well according to the Fed chief.

The Fed governors projections for economic growth (dot plot) was knocked back to below 2% for 2017 and 2018. Remember that the Fed’s projections never come in lower than reality. For the last 8 years the Fed’s projections have always been rosier that the actual growth, so the projections for 2017-2018 may mean that the next two years will be worse than the last two years.

However if you listened to Yellen, she spoke about a growing economy based on job growth. It was very strange how the data disconnected with her comments.

So the narrative coming out of the meeting is that there will be a rate rise in December. But how can you raise rates if growth is nearing stall speed and we could be in a recession in 2017 given the Fed’s rosier than real projections?

But none of that matters as the Nasdaq hit an all-time high while Yellen spoke and bonds sold off as markets figured that a low Fed Funds Rate will be with us for the foreseeable future.

We have debt bombs & now H-bombs to deal with

US equities are falling hard down 250 points in pre-market as European bourses follow Asia lower on further problems in the east.

China’s currency devaluation continues as Fx traders in Hong Kong take the yuan down much lower than the government peg to record lows.

This is the messy part of trying to get the renminbi accepted as a world currency, the open market is not always aligned with the sovereign on valuation. To put this in perspective 1 yuan is worth $0.15 and that’s the official value, in the one market it’s going for $0.12 or so. One Japanese yen is worth less than a tenth of a penny.

The second shoe to drop overnight was Japanese equities dropping on reports North Korea successfully tested a hydrogen bomb.

Markets are very susceptible to hard downward movements as basic economic fundamentals such as growth and liquidity are called into question as being adequate. Gun-shy investors don’t an anvil to come down on their heads to start a run toward the exit.

This afternoon the Fed releases its minutes from the infamous Dec. meeting when it announced it was raising interest rates by a quarter point. The Fed Funds rate is officially set at 0.25% – 0.5% as a result of the Fed’s actions. Yet in the market the Fed’s rate is trading at 0.15%, which says the street has little appetite for what the Fed is offering.

The disparity in the rates also suggests that while the Fed jawboned the hike it did not think it was the right time to pull the necessary liquidity out of the market to get the funds rate up to the desired level.

So the Fed pays the Wall St banks 0.5% or so on deposits, while not constricting overnight lending to the same banks and that’s why no savers are getting anything extra on their deposits.

Another example of the Wizard Yellen saying, “Do not look behind the curtain people, I am the great and powerful banker.”

Well we get more of that this afternoon.