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Today's Commentary
Sunday, September 25, 2016

The Federal Reserve Left Short-Term Interest Rates Unchanged… Central bankers noted that conditions are ripe for a rate hike by the year's end, but wanted to wait until at least November for more positive economic signs.

What it means – I. Hate. Them. All.

OK, that’s too strong, but you get the point. This entire charade of crying, “Wolf!” only to backtrack and wait for more data isn’t helping the economy. In her post-meeting press conference, Chair Yellen accidentally highlighted the crux of the situation. She stated, “It just isn’t clear what is the correct policy and what exactly is going on in the economy.” I believe her.
I also wonder, in light of this, why they keep acting as if their analysis matters. No one has a clear view of monetary policy. This year looks just like last year, when Fed officials jumped up and down, telling everyone rates were going higher, then bumped the overnight rate a measly 0.25% at the last meeting of the year.

Beyond the headlines, the Fed did release some interesting data. The governors now expect GDP growth of just 1.8% this year, then 2.0% in 2017 and 2018, before growth falls back to 1.8%. Wow. If that’s all I get for my $4 trillion and years of paltry returns on fixed income, I want a do-over!

The markets shot higher on the news, and bond yields fell. Based on their comments, investors are confident that interest rates will remain very low for a very long time.


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