What is Janet Yellen thinking?
As the Fed wound down its QE program in 2014, the $USD hit liftoff. It has since hovered in the mid- to upper-‘90s.
Throughout this period, anytime the $USD began to move sharply higher one of more Fed officials appeared to “talk down” the $USD.
The reasoning here is simply. A strong $USD crushes corporate profits. Indeed, since the $USD began its bull market S&P 500 earnings have collapsed to 2012 levels.
A strong $USD also asks for trouble from China. It was the strong $USD that forced China to devalue the Yuan in August 2015 and again in December 2016… both of these times, US stocks collapsed 10% in the span of a few days.
Having said all of this… in the last month the $USD has erupted above 100 and the Fed hasn’t said a word.
Worse than this, the Fed raised rates again yesterday and has predicted THREE more rate hikes in 2017.
The Fed is doing this when the $USD is already at a 13 year high!?!?
The Fed is playing a very dangerous game both with China and with the markets. I wouldn’t be surprised to see a VERY aggressive Yuan devaluation in the next few weeks.
And it’s going to trigger a market meltdown just as it did in August 2015 and January 2016.
THIS WILL HIT BEFORE THE END OF JANUARY.
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