The Fed’s minutes came out today, and they were yet mildly hawkish in that vague sort of way that has preceded twenty-nine of the last two actual rate increases.
There is a theory about that because of the failure of the EU and alternatively China, the inflows of monies into dollar assets are bound to continue to drive the major stock indices higher, and will prompt the Fed to raise rates higher than many think.
This is a variant of the ‘money on the sidelines’ theory that, for whatever reasons, will be compelled to toss their wealth into overpriced assets because they have ‘no other choice.’
Now of course this is possible. The real question is, ‘how probable.’ And what sorts of things might we watch to determine if this particular scenario is genuinely falling into place.
Nothing in the markets is uni-dimensional. A Fed raising rates to try and stem a stock bubble fueled by a flight to safety from Europe/Asia is certainly a scenario, but there are a lot of other things that go along with it.
For example, what happens to the real economy and wage growth in the US as the Fed starts jacking up rates to try and halt an exogenously driven stock bubble? What other steps might the Fed and the regulators take?
To what extent will the market ignore expectations for US business performance and just run with the rallies with abandon?
I do not know. But one thing I am almost certain of is that no one else does either. And to the extent that they do know, they certainly are not telling the general public about it, or selling it for ten bucks a toss to retail investors.
This post was published at Jesses Crossroads Cafe on 22 FEBRUARY 2017.
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