The Fed continues to threaten to raise rates sooner rather than later trying to curb their fear of excess exuberance in the financial markets. We all know that the Fed wants to return to a more normalized rate structure so that they are poised to lower rates levels if and when the economy falters. However, they are also fully aware that it's virtually impossible to lower rates from 0.25 percent and have much impact on the financial system and the economy.
Don't you agree that their concern at this point in time is misguided? Just look at the fragility of the global economy including the United States. We have had an accordion-like economy with strong quarters followed by weak ones and vice versa for several years now.
The simple truth is that the Fed mandates have to expand from focusing solely on levels of employment and inflation to include what is happening abroad and its impact on all global economies and markets.
The Fed and the United States don't live in a bubble. It's time that it be recognized by Clinton and Trump, too. Both politicians don't seem to get it or at least, not enough. Globalization is a fact of life.
Just step back for a second and ask yourself one simple question, "Are the risks to growth and inflation here and abroad to the upside or to the downside?"
You don't have negative rates in many parts of the world for no reason!
It really is clear that no one is worried about a runaway economy here or even core inflation rising much above 2 percent until 2018, so where's the beef?
Our market is statistically undervalued even with 10-year bond yields of 2 percent, which is 0.5 percent higher than where rates are now. Yes, our economy is accelerating, after a very disappointing first half, with inventory being accumulated after second quarter liquidation contributing 1.5 percent to GNP growth alone. And with accelerated growth comes accelerated earnings growth. Not a bad recipe for higher stock prices.
However, everyone fears that the fed will begin raising rates too soon, trying to stay ahead of the curve rather than behind it, fearing an overheating economy down the road with rising inflationary pressures.
Wouldn't you agree that this is premature?
The real issue and concern for the financial markets should be why the ECB and BOJ have to continue with such aggressive QE and push rates so low, even negative, buying massive amounts of all debt attempting to stimulate growth and move inflation upward closer to their 2 percent targets, too. By the way, none of this is working after several years of trying.
It's time to understand what are their real problems; what are the needed fixes; and where are the European and Japanese economies going?