Fed stays pat, markets go flat

As I wrote yesterday the Fed was going to be stubborn and not recognize the weakness in the global economy, so the market reacted with a selloff.

In their statement the Fed did not see a reason to mention crude oil pricing as anything more than a transitory blip on the screen. It still maintained its thoughts that inflation developing.

In the Feds jabberwocky world, it believes as rates rise — by restricting capital — inflation will rise. In my economic text books it states that rising rates combat inflation.

But that was written before QE and its subsequent Fed actions perverted the markets.


The dollar strength/stocks weak model has been working well in 2016, with the correlation moving in equal but opposite directions.

As a result of this equation, gold prices have also benefited. Don’t tell the Fed but gold has quietly risen $60 this year.

I say don’t tell the Fed because rising gold is the bane of central bankers. It’s the barometer by way you can measure their effectiveness.

High gold prices mean the currency is less valued and if you see what gold goes for in some countries with double-digit inflation you would understand.

So the gold price is telling Yellen & Co. that they were off quite a bit with the Dec. rate rise.

 

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