The Fed is treating the markets with kid gloves...the notion being that after a period of intense stimulous Wall Street "can't handle" any bad news from the Fed.
Hence, this bizarre period of extreme predictability wherein rates go up 25 BP at every meeting. But is this really helping the market? Because if everyone knows that rates are going up...why would anyone "hold" bonds? Furthermore, to achieve historical "normalcy" the Fed Funds rate is going to have to rise to much higher levels than they are now..... So why hold stocks?
The background to all of the "normalcy" is a very abnormal oil market, which it could be argued was caused by the Feds hyper-liquidity attempt to "save the bubble," or at least save the stock options of the CEOs after the Crash of 2000.
But, with oil now "off the charts," the Fed may have to do more that just return to normal levels of liquidity.....it's possible that oil will require the "1970's Treatment," and rates will have to go higher than normal for a period to convince the markets that the Fed is serious about a strong dollar.....
And then, there is the trade deficit which, like the crazy aunt in the attic, nobody even talks about anymore....at least in the US. But the US deficits are ALL OVER the Euroland papers and in the British FT....
And so it goes, more sad songs from the Fed Cafe.....stay tuned. Because this could be interesting....later today.
....Or not.
