Saturday, April 30, 2016

Jim Bianco:
The Markets Have A Veto
Over Federal Reserve Policy
"The markets have a veto over the Fed policy. The Fed suggests a policy, the markets bless it. If the markets don’t bless it, eventually the Fed will engage in some kind of push-pull-strategy. But at the end of the day, the markets have the final say and if they’re not ready for another rate hike, they throw a fit and the Fed refrains from upsetting them. This is not new. The markets have been driving Fed policy for a long time. It’s just that our awareness is higher about it recently. The FOMC statement was invented in 1994. Since then, the Fed has never raised rates without a move being at least 60% priced in the markets the day of the Fed meeting. So if a rate hike is not priced in the Fed is not going to do it .. The Fed seems to be very dovish. They’re afraid to upset the financial markets at this point. We’ve started the year with everybody confident that we are going to get four rate hikes. But we could very well get out of 2016 with zero or just one rate hike .. If the markets are understanding that they got a veto over the Fed then they can do what they want. This runs the risk that stocks take off to overvalued range, go to immense multiples, go bubble because investors don’t believe that this Fed would ever step on the breaks. That is the concern that I have because I am still not a believer that the economy is doing well. Of course, Wall Street’s job is to torture the data to find something positive out of it. But I see negative year-over-year earnings, I see the forecast for the next couple of earnings seasons with negative year-over-year earnings growth, I see sub 1% growth in the U.S. economy and I see low expected inflation. Except for the payroll reports, there is no consistency that things look robust."
LINK HERE to the interview transcript

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