Tuesday, August 23, 2016

Blindsiding Rate Hike Slipped Into Yellen's Speech

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*Fed Governor Stanley Fischer and the WSJ gave hints that rate hikes are imminent.
*That is important to know ahead of Yellen's speech Friday.
*The Fed is confusing the public talking about low rates longer term but they really mean rate hikes shorter term.

Sunday was a busy day to try to clarify what to expect from Fed Chair Janet Yellen's speech this Friday. While most Fed officials talk about lower rates and lower inflation longer term that does not mean no rate hikes. Frankly they are sending a confusing message. Looking deeper in their words they are plainly saying a rate hike is imminent and we expect Fed Chair Yellen to say such on Friday.
Blindsiding Rate Hike Coming
Let's skip the long term inflation and interest rate commentary from the Fed. The more traders listen the more they are going to get blindsided with a rate hike. Let's listen to what the Fed is saying that matters most to the next rate decision. This language likely means a rate hike.
Vice Chairman Stanley Fischer said Sunday,
"So we are close to our targets. Not only that, the behavior of employment has been remarkably resilient."
He is saying we are near the 2% inflation mandate and at or near full employment. That deserves a rate hike especially when rates are at their all time lows. Not moving is creating a material risk to inflation for the economy. Excuses not to raise now create more risk to the Fed than to raise. That's why we think their language is clearly changing to say they will raise but they will not need future hikes. ("One and done" in plain English).
"Yet, even amid these shocks, the labor market continued to improve: Employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate."
The Jobs market can handle and needs a rate hike.
"So far in 2016, nonfarm payroll gains have averaged about 185,000 per month--down from last year's pace of 230,000, but still more than enough to represent a continued improvement in labor market conditions."
We are at full employment. Further job growth is pushing that full employment fuller. That is inflationary
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Chaim Siegel has been working with hedge funds and mutual funds as an analyst and PM his entire career. Chaim specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company stories with a hedge fund perspective. If you want his analysis real time sign up to the right for real time email alerts. #in, $spy, $qqq, $iwm, $vxx, $ycs, $fxe, $EUO, $YCS, ^GSPC, INDEXSP:.INX, #elazaradvisorsllc, CME Globex: ES Disclosure: These trades can lose you money and principal especially when using leverage BY USING THIS SITE YOU AGREE TO TAKE ALL RESPONSIBILITY FOR YOUR OUTCOMES AND LOSSES AND HOLD BESTIDEAS, ITS CONTRIBUTORS AND ELAZAR ADVISORS, LLC HARMLESS