Usually, my Friday morning includes an afternoon brunch at Boulevard Kitchen in downtown followed by frequent naps. A perfect meal would be incomplete without a mesmerising dessert. So I park my Range Rover next to “Molten Me” and dive into a tarn of strawberry and enchanting red velvet waffles served with a sweet cream cheese glaze and ice cream. However, this Friday was not the same; rather this weekend I was sleep deprived due to anxiety and curiosity of what the Fed Chairperson Janet Yellen might sing at the Jackson Hole, Wyoming in the Annual Economic Policy Symposium.
Yellen is gifted with the DNA of upsetting the market composure, and investors know this and thus get spooked every time she comes on the mic. The FOMC minutes in August drew a solid line and prepared a battlefield for the Fed hawks and doves that stood their grounds and declared war on interest rate hike. Yellen’s speech on Friday gained hype as investors watched for any hints on lifting rates on the 20th-21st September meeting. The speech was about “The Federal Reserve’s Monetary Policy Toolkit” which involved talks about how Fed may react during future slumps.
“Jackson Janet rate up the hill,
Checking inflation and labour,
Stocks came down, dollar rebound
The economy has shaken forever.”
However, as expected, Yellen did yell about the Fed’s current monetary policy and gave a ridiculously bullish outlook on US economy. She said that the US economy was nearing Fed goals, and the chance of an increase in the lending rates was strengthened. Have we eaten this dish before? Yes, we have, but maybe not in the same restaurant; the same chef, however. This is not the first time Fed may have cried a wolf. Let us go back to April 2016, when the summers were less scorchy, and I had a full head of hair. The Fed was freakishly optimistic about the US economy and hinted a possible rate hike in June because back in December 2015 they committed four rate hikes in 2016 (at a GRADUAL pace).
That commitment flushed into the gutter after the disappointing job numbers came out in May. I threw up after seeing the Non-Farm Payroll data. There were days when I would just say NFP to help my dog take a dump. Moreover, how could we possibly forget the judgement day when Brits drank their last cup of tea with the European Union. The fear of Brexit, weak jobs report and uncertain overseas development led Yellen and the crew to keep the rates on hold. So, long story very long, the Fed and my friend Marcus are slightly low on credibility. Marcus has nothing to do with the rate hike, but he did borrow $6,700 from me which he did not pay and flee the country.
Fed, on the other hand, has a point to prove here. This week the NFP data (expected 190 k) will be under the radar because of our financial granny who hedged her statement at Jackson Hole saying that Fed needs to check the data before they light up the torch of a rate hike. Is the September rate hike on the table? Raise your hands if you know what is coming in November. That is right, the funniest and yet most important day in the history of United States of America. It is the month of Trumpleton (Trump + Clinton). The rate hike before the elections is similar to killing Jon Snow. Because it does not make any sense, will disappoint the markets, and people will hate you for that.
Besides, the latest GDP figures showed that the economy grew at the rate of 1.1% during the second quarter against the estimate of 1.2%. The housing prices and the labour market have improved significantly. The wages have started growing; inflation goals are in line, and the consumer spending is stable. The markets have recovered from the Brexit shocks too, and not only the US but the United Kingdom economy also which grew at 0.6 percent boosted by household spending.
Currently, Fed targets the interest rates to be around 0-3.75% at the end of 2017. After elections, it will be a right time for Yellen and the crew to fulfil their commitment. Maybe a Christmas present to the investors like last year. If they deliver their promise, then the importance of their word will create value, but investors might not take it well. The US stocks have been on a rally for some time, and now the performing sector- utilities, telecommunication and consumer staples are shadowed by the recent rise in bank shares. It shows the sentiment of the investors.
After Yellen’s remarks, stocks went up but came down quickly too. The dollar index rebounded and gold closed at a low. If the Fed delay the rate hike(like they do most of the time), then the stocks might continue to rally by improved economic data, but then both Fed’s promises and Marcus’s existence will be taken for granted. And you know who Marcus is!
From the Joker’s Vocab
Interest Rate Hike- The increase in the lending rates or the cost of borrowing. The commercial banks pay interest to the central bank for the money commercial banks borrow, and we pay interest to the commercial banks for the money we borrow. Seriously folks, it is no rocket science.
Federal Reserve Bank- Like every country has a central bank which decides upon the interest rates and are authorised to print currency, USA ‘s central bank is called Federal Reserve Bank. You can cut it short by calling them Fed.
Monetary Policy- A series of steps and procedures taken to cater monetary issues of an economy.
FOMC- Well! The division which creates or amends monetary policies. In the case of Fed, it is FOMC (Federal Open Market Committee).
Hawkish or Hawk- A hawk member is one who is aggressive about raising the interest rates. In that case, his or her statement would be called hawkish.
Dove or Dovish- You guys are smart. Do the math.
Non-Farm Payroll Data (NFP) – The data which presents the number of people employed in the private sector (excluding the farming industry) during the previous month. Traders hold their piss and trade.
Marcus- My friend (now an enemy) who owes me $6,700
- Will Fed raise rates in September or send Santa to surprise the investors?
- Will the Non-Farm Payroll data be convincing enough for Yellen and the party to lift rates?
- Will Marcus ever give me my money….argh! Forget about that.
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