Good Fed/Bad Fed

28 Jan

The slew of earnings announcements that mention a strong dollar as a major headwind is growing. In addition to a strong dollar, a large number of reporting companies highlighted the weak oil markets as an additional headwind going forward. While it is true that  a large segment of the general populace benefits from a weaker crude market, we must not forget that a lot of the growth we have seen in domestic manufacturing in recent years has come from the shale oil boom. As for the dollar, it is true that the Fed has to conduct its monetary policy based on what is happening in the domestic economy. However, it is also true that like it or not the Fed is the Central Banker to the world and as such their insistence on maintaining a crisis mode interest rate policy, in the absence of any crisis, has set in motion an adjustment and re-adjustment of currencies across the entire globe. While the new Maestro has gotten nothing but platitudes for her ability to: promise action (maybe), while at the same time guaranteeing the capital markets that any action (if followed through on) will do no harm. Our response is that that ship sailed long ago. While the Fed ponders the possibility of raising the Fed Funds rate a whopping 25 basis points, perhaps they should pay stronger attention to what their policy inaction or mis-action has wrought. Infatuation fades, Central Bankers should take note.

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