The Fed is Out of “Tools” to Fix US Economy

The Fed is Out of “Tools” to Fix US Economy

The Fed is Out of “Tools” to Fix US Economy

$DIA, $SPY, $QQQ, $VXX

New York Fed President William Dudley said in a speech Monday from Bali, “Market expectations, to my eye, derived from federal funds futures prices, which price in no more than one 25 basis-point rate hike through the end of 2017 … appear to be too complacent.”

He added: “If the upcoming information validates my view of the outlook, then US monetary policy will need to move at a faster pace than implied by futures prices to a more neutral posture as the labor market tightens further and US inflation rises … It’s premature to rule out further monetary policy tightening this year. It depends on the data, broadly defined, and as we all know, that’s not something one can predict with any great accuracy.”

About the value of the USD, and this is important for all investors, Mr. Dudley gave really interesting remarks that should give us a somewhat better understanding of where the dollar could be heading (or staying) over the near to median term (direct correlation to global growth) and how the Fed will try to manage keeping the dollar at reasonable levels without running the risk of being accused of targeting the value of the dollar: “US financial market conditions depend, in part, on the stance of US monetary policy relative to monetary policies abroad. If the economic outlook abroad deteriorates and this causes foreign countries to pursue a more accommodative set of monetary policies, then the dollar would likely appreciate … the US interest rate path has come down in tandem with the foreign interest rate paths and the dollar has appreciated only modestly … This is a crucial point and I want to make sure there is no misunderstanding. The Federal Reserve is not targeting the exchange value of the US dollar. What the FOMC considers are financial conditions broadly defined, because they affect the saving and investment decisions of households and firms. The dollar is but one component of these financial conditions.”

It will be what occurs abroad to the growth scenarios of the other major world economies that all are stagnant, which will be a Key drivers that will guide the Fed finally deciding when to start for real its long undertaking of normalizing its monetary policy.

 

Now, the Fed has no effective tools left in case the US economy should have to face another important downturn, except ‘helicopter money”.

Notably, Goldman Sachs’ investment strategy team just informed its clients it is overweight cash and has downgraded stocks to underweight over 3 months, and is Neutral over 12 months.

Monday, the US major market indexes finished at: DJIA -27.73 at 18404.51, NAS Comp +22.06 at 5184.20, S&P 500 -2.76 at 2170.84

Volume: Trade was light with about 829-M/shares exchanging hands on the NYSE

  • Russell 2000 +7.2% YTD
  • S&P 500 +6.2% YTD
  • DJIA +5.6% YTD
  • NAS Comp +3.5% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.30) Neutral (0.19) Bullish (0.37) Bullish (0.33)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.31) Bullish (0.27) Bullish (0.33) Bullish (0.33)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.25) Neutral (0.02) Very Bullish (0.62) Neutral (0.11)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.39) Bearish (-0.32) Very Bearish (-0.54) Bearish (-0.29)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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