Where’s the Data? & Would You Place This Trade?
We don’t think the Fed will raise rates when they meet next week and here are 10 reasons why:
- First and foremost – The Fed is data dependent – Where’s the data that warrants a rate hike right now?
- The Fed has a dual mandate (help the economy/jobs and keep inflation near 2%). Right now neither one of their mandates are being met so why would they raise rates next week?
- Global economy is slowing (even with rates at zero)
- Japan, Canada, Australia (major trading partners) are already in a recession
- Commodities are in a bear market (forecasting a recession)
- Transportation stocks are in correction territory (forecasting a recession)
- Deflation remains more of a threat than inflation right now
- The IMF and other important economic entities have publicly asked the Fed not to raise rates in 2015
- The Fed has placed the perfect hedge by saying they are data dependent. We’ll raise rates when the data improves. But if it doesn’t we are open to either A. Not raising rates or B. Print more money (QE 4) to stimulate both Main St and Wall Street…
- Risk/Reward: What’s their downside to waiting? Inflation? Doubtful… On a simple risk/reward basis- the upside to waiting outweighs the downside. Especially given the “bearish” action we are seeing in so many asset classes.
We know anything is possible but based on the “data” we don’t see a powerful reason for the Fed to raise rates when they meet on Thursday. If you were a voting member for the FOMC. Would you place that trade?
2 Bullish Ways For The Market Can Rally AFTER the Fed Meeting
We could easily see a “bullish” outcome next week.
1. The Fed does nothing and stocks rally because easy money is here to stay. 2. The Fed raises rates by a quarter point (which is really symbolic in nature) and stocks rally because that is already “priced in.” Meaning, late August’s sell-off priced in a Fed hike.
We don’t believe the Fed will raise next week but of course, anything is possible.
