The Fed Is Freaked Out About The Financial Markets

Early in the new year, on Sunday, January 3, Federal Reserve vice chair Stanley Fischer delivered a hawkish speech to the American Economic Association. Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.

The next day the S&P 500 dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points.

The dollar went up. Oil plunged 21 percent. Raw material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially.

Actually, it was a global event, as stock markets around the world plunged. Utter chaos.

This past week, the Fed retreated in its FOMC policy statement. For the first time in a long while, it didn’t bother with a risk assessment between inflation and employment. The whole statement had a much softer tone. It reminded me of the prevent defense of the old Bill Parcells New York Giants.

Putting it more starkly, I’d say the Fed is completely freaked out by financial markets that are turning against it.

The central bank says its policies are “data driven.” But the recent FOMC statement suggests the Fed is looking at everything. It has a hundred indicators — domestic, international, jobs, and inflation. In truth, it doesn’t know what its next move is going to be because it can’t read the economy. Fed policy is opaque, confusing, and rudderless.

Take a look at the new GDP report for the fourth quarter of last year. A mere 0.7 percent growth. Across 2015, real GDP grew 1.8 percent. It’s not a recession. But any shock could push us into recession.

http://dailycaller.com/2016/01/31/the-fed-is-freaked-out-about-the-financial-markets/