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Even Doves Have Become Hawks
We continue to hear from folks that are worried about the Fed hiking rates by 25 basis points in December. Here are my thoughts on this:
A rate hike of 25 basis-points is very small. By itself, it doesn't change much in the way of lending. For me, the problem isn't a small rate hike; it’s only if the Fed hike rates for all the wrong reasons.
Last December, Yellen & Co hiked rates from zero, mostly to prove their independence from Wall Street. Many believe that the Fed is in the pocket of the Street, and the only reason why stocks are higher. If that were true, all stocks would be up by the same percentage amount. However, all stocks would be up; of course, thousands are lower. In Japan where the Bank of Japan ( BOJ )actually buys stocks via Exchange-Traded Funds (ETFs), the Nikkei 225 is getting slammed-our Fed doesn't buy stocks directly (or indirectly), but the timing was completely wrong.
In fact, the Federal Reserve has missed numerous windows where a rate hike would have been applauded. And now, they are behind and playing a dangerous guessing game.
I keep writing that good news will be good news because it allows the Fed to hike rates for the right reasons. If they are hiking while wages are flat and the Gross Domestic Product (GDP) is sub-par, then it underscores a monumental misunderstanding of Main Street. The market will tank, and bears will say it’s about the hike itself.
Right now, even doves have become hawks. It makes you wonder because even the better-than-expected GDP report was paced by a one-off such as a soaring demand for soybean exports.
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