The eight-times-per year Fed circus is about to begin this week (Wednesday), for a two-day freak show that will be accompanied by rumor-dependent market volatility and the appearance ad-nauseum of “experts” on the financial media propaganda conduits. Their mouths always seem to be moving but nothing meaningful ever comes out.
Perhaps one of the comedic highlights is watching Steve Liesman grunting over the policy statement, sweat pouring from his navel orange some might call a bald head, as he strains to look for any punctuation marks that might have been added or removed from previous policy statement released in July. The whole spectacle epitomizes theatre of the absurd.
I still believe that the Fed will find some reason to defer raising the Fed funds rate even just one-quarter of one percent off the zero-bound, to which it’s been anchored since December 2008. The economy continues to show all the signs of contraction. Today, for instance, the retail sales report for August showed a meager .2% rise from July, which means that, after adjusting for inflation, real retail sales declined. What happened to the “bump” retail sales used get from “back-to-school” shopping?
In addition, the NY Fed manufacturing index literally collapsed to -14.67 vs. the -0.5 expected. It is the worst reading on the index since August 2009. Employment and number of hours worked plunged. The new orders sub-index continues to show a greater level of contraction than the overall index.
So what’s the Fed to do. In reality QE and ZIRP were never about a Keynesian attempt to stimulate economic growth and create jobs for the masses. The massive money printing and trillions in Government banking industry subsidies were always about keeping the big banks from collapsing. Everything else was straight out of the “textbooks” given to us by George Orwell and Ayn Rand.
I wrote an article for Seeking Alpha explaining my rationale for yet another deferral on moving the interest rate needle just one millimeter off zero, once again:
If the Fed were to increase the cost of borrowing by raising the Fed funds rate, in all likelihood private sector borrowing, which is about 71% of the systemic debt outstanding, would contract. It is my assertion that this would cause a severe economic contraction. In this scenario, I believe the Fed would be forced sometime in the near future to address the economic contraction caused by hiking interest rates with more QE.
You can read the rest of this article here: No Interest Raise Hike This Month