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posted on 03 February 2016

Instant Replay! 'U.S. Business In The Hands Of Federal Reserve Academicians!'

by Michael Haltman

The Federal Reserve, after raising its benchmark fed funds rate 0.25% in December 2015, last week left rates unchanged!

The December increase was implemented despite inflation remaining well below the Fed's target rate of 2% and in the face of an economic recovery that could be, at best, termed tepid.

At the time some speculated that the Fed needed to raise rates so that they would have the ability to lower them again should the economy weaken. Still others thought that to retain any credibility they needed to make a move.

Neither one of those could be called solid reasoning when making decisions impacting the U.S. economy.

And since the rate hike this chart depicts the counterintuitive track of 2-year treasury note yields courtesy of treasury.gov...

And courtesy of finance.Yahoo.com, this is the one month chart of the S&P 500...

Federal Reserve Credibility?

'The Federal Reserve on Wednesday acknowledged that the U.S. economy has slowed down but provided little guidance about when it would raise interest rates again.

The central bank began pulling back its support for the recovery in December and signaled it anticipated increasing its benchmark rate four times this year. But weeks of turmoil on Wall Street have spurred doubts about whether the Fed will forge ahead.

For now, the central bank is standing pat. In a unanimous vote Wednesday, the Fed left the range for its benchmark interest rate unchanged between 0.25 and 0.5 percent. Its official statement emphasized the resilience of the job market despite the weakened recovery and pointed out strength in consumer spending and the housing sector.' (Washington Post)

So do we feel that the Fed as an institution with HUGE responsibilities, has a firm grasp on accomplishing its mandate?

Janet Yellen and the Fed

In September 2015 I wrote the following article that opined over the fact that the Federal Reserve, in effect the arbiter of the global financial system, is run by academicians with little to no actual experience with business.

I thought that after yesterday's statement it was worth repeating...

Instant Replay: 'U.S. Business In The Hands Of Federal Reserve Academicians!'

What is it that can and often will separate successful businessmen and investors from those who may not be?

Often it's the ability to 'pull the trigger' on decisions that may not be that easy to make.

In the stock market the best time to buy is often the very time that everyone else is selling and, conversely, the best time to sell is when the masses can't get enough.

In business it's having the proverbial cajones to enter a new market, exit an underperforming market, to innovate or maybe to use a marketing strategy that pushes the envelope beyond the place competitors might be willing to go.

Government on the other hand, a category in which I will place the Federal Reserve, has no need to innovate or to push the envelope.

Government in effect has no responsibility to a bottom-line or a need to grow in any way other than raising taxes to bring in more revenue or to increase infrastructure to create more jobs.

Either way, whether through taxes or through government growth, the cost is borne by you and I, the taxpayer.

To further compound the problem of government bureaucrats setting policy for businesses and individuals is that I would venture to guess that many if not the majority have little to no actual business experience.

A perfect example might be the government mandated minimum wage of $15 an hour that might sound great to the voter, but will undoubtedly have unintended consequences politicians can't be bothered with worrying about.

I hate to say it but the above mentioned description certainly seems to be the case with Fed Chair Janet Yellen, an appointed government official who has much of the worlds financial future (at least in the near to medium-term) in her hands.

Janet Yellen

'Born in Brooklyn, New York, in 1946, Janet Yellen

Read the rest of the article at the Hallmark Abstract Service blog here.

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