The Fed removed the word Patience from its statement made following the FOMC
meeting that concluded on Wednesday. But, taking out that one word proved to
be mostly irrelevant. The removal of the patient language was more than offset
by the Fed's lowering of its GDP growth estimates and its projection for when
and how high it will raise rates based on its previously incorrect assessments
of inflation and growth. Ms. Yellen said in the FOMC press conference that
removing "Patient" did not mean she would become impatient with raising rates.
It is clear that the dollar's strength and the cascading economic data reported
since the start of 2015 caused the Fed to push out its timing for its first
rate hike and the overall level for which it will finally reach equilibrium.
This was a dovish statement despite the removal of the word "Patient". It
is now apparent that the Fed will not raise interest rates unless both the
dollar falls in value against the euro and yen; within the context of building
U.S. economic strength. However, both those conditions cannot be true. A stronger
economy would lead to a stronger dollar; and that will cause earnings growth
to continue to plummet, cause a stock market correction and put the Fed's inflation
goal further out of reach. This should stay the Fed's hand. Likewise, a falling
dollar would only become manifest under continued weakening economic data,
which would cause the Fed to remain on hold because it can't raise interest
rates while the economy is barely growing; and is currently flirting with recession.
The bottom line is the Fed will find it very difficult to raise rates unilaterally
and will probably have to wait at least until the ECB and BOJ stop QE. This
is why gold soared after the FOMC statement, along with the major averages.
The Carnival Barkers that dominate the financial media applauded Ms. Yellen's
performance at her press conference; saying the Fed had learned its lessons
from the past (think 1937) and would not cause another depression within a
depression. However, keeping ZIRP in place for another few months, at the very
least, after being at zero percent for nearly 7 years isn't at all learning
from the past. The central bank is directly responsible for creating serial
asset bubbles during the last three decades and allowed for massive debt accumulation
to now reach the point where every developed nation is insolvent and totally
addicted to their central banks purchasing virtually every issued sovereign
bond.
The bottom line is that the Fed is scared to death about pricking the equity
and massive bond bubbles it has worked so hard to create following the Great
Recession. Ms. Yellen appears to have run out of patience with only one thing...the
word patience. But sadly, it appears she will not run out of excuses for keeping
borrowing costs at zero.
