So this week is all about the Fed rate hike decision on Thurs. afternoon.
But let’s look at from this perspective. It’s not whether Janet Yellen will raise rates, it’s that she can’t.
After 7 years of zero-rate policy and nearly $4.5 trillion on the balance sheet — spent to put Treasury notes on Wall St banks balance sheets at no charge to them to keep the bulge banks afloat — the US banking system is in no better shape than after Lehman Bros. crashed and burned in 2007.
I believe it’s less about the economy and more about the price of these “assets” on the balance sheets.
If the Fed raises rates, then the price of the bonds fortifying the balance sheets of Citi, BofA, JPM, Wells Fargo, Deutsche and Morgan Stanley to name a few would lose value and put them in the need for more QE.
It’s a bit perverse, but it’s what I have been saying all along. The Fed is closer to further easing than raising rates.
The amount of pain for the banks on cratering oil prices and the global economic slowdown, trumps the Fed’s hubris of being able to raise once and done.
And as for inflation, there is none, unless you look where the Fed has put all its resources into, stocks.
There is little in the way of wage growth, the cornerstone of inflation. The price bubble is in assets like stocks and high-end real estate, where you can find a return on investment, since there is no interest paid on savings.
Thursday will come and go without much ado about nothing.
Tomorrow we will talk about possible gimmicks the Fed could use on Thursday to placate the bond vigilantes, who desperately want a rate hike.