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The Fed’s Market Disruption Continues

December 15, 2016

Yesterday the Federal Reserve dutifully increased its benchmark interest rate .25% and, once again, did so at a time to cause the must disruption to the markets – including the stock market. Just after the announcement, which was anticipated, the average trading volume increased almost 800%. However, in spite of this, the net change in the S&P 500 index was only about 1%. Hints were also suggested that the Fed will “likely” increase rates three times next year.

I presented my feeling about the Fed’s “importance” in interest rates last year, just after they announced their last increase. See my blog posted on December 17, 2015 ( Today I want to make a few additional points.

  • Last year’s increase was a signal that the Fed believed the economy was getting stronger. Based on their assessment at that time it appears they were wrong – unless you include yesterday’s self-proclamation of economic strength.
  • “Stronger” is a subjective term if you are an economist or a Federal Reserve Governor. However, if you are still one of the unemployed or underemployed I believe they will disagree with the Fed’s assessment. Likewise if you are a small business person afraid of investing in expansion because of a doubtful adequate return.
  • I believe the economy is stronger because my stock portfolio values increased this year. However if you want to measure stronger by the sales growth of the S&P 500 Index companies which declined 1.25% this year there wasn’t any “stronger.” Drops in sales do not indicate strength!
  • If the Fed is as important as they imagine in their minds then why are two of the seven Governor positions vacant and why was 2013 the last time there was a full seven members? To me, this indicates the lack of importance of this body – at least in the eyes of Congress, which in and of itself shows the distain of their Constitutional responsibilities [this is a different story that I am not touching on now].
  • If Dr. Yellen feels that the economy is getting stronger and this will result in three increases next year, then what “proof” does she present? Actually there is no proof – this is more hocus pocus, just as her remarks last December.

We will have a new president next month with unorthodox political views and a businessperson’s disposition and this has created a burst of optimism. That might create a stronger economy next year. The Fed’s declaration yesterday and publicity seeking action will not.

Read my views posted last year and add these to them and I welcome anyone reading these to show me how I am wrong!

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