WASHINGTON, September 21, 2016 – Very short column here, as we write this during the noon hour on Wednesday, the day the Federal Reserve Bank will allegedly issue its long-awaited/long-feared position on a September interest rate hike. Or a December interest rate hike. Or both. Or neither.
It’s clear that in some respects, an exasperated stock and bond market has stolen the initiative away from the All Postscontinually vacillating Fed. For real people, interest rates have already gone up for auto loans, home loans, you name it. Even CD and savings rates have ticket somewhat higher, although negligibly so.
Perhaps it’s best this way. Once the Fed does finally decide to jack interest rates up by a threatened (and miniscule) 0.25 percent, much of the angst will have already percolated through the market. We think.
On the other hand, the consensus is already so strong that the Fed will tighten interest rates in December if at all, that a quarter percent jump today might cause us to issue a 1950s-style “duck and cover” alert for anyone still holding on to common stocks.
We still have a fairly well-invested portfolio at this point, a little interest rate sensitive and therefore likely to sustain some damage if the Fed goes boldly into that good night.
On the other hand, with all of professional Washington and all the bigwigs in New York firmly on the side of holding interest rates steady, the better to help Hillary by not causing a market crash, we still think politics will play a big part (or already have done so) with regard to this afternoon’s announcement.
The big news is slated for 2 p.m. EDT, although we’ll be watching to see what the big traders do starting around 1:30-1:45. They always get the Fed info somehow before the Maven and other Deplorables get it, even though they’re not supposed to or at least are not supposed to act on it. But they do and they will and the trading action prior to the witching hour could give us a tell.
Stay tuned, and we’ll crank up an update later this afternoon after the smoke has more or less cleared.
UPDATE: Markets played cat and mouse after the Fed’s relatively tame non-announcement before rallying hard into Wednesday’s close. Interest rates aren’t going up in September, but the clear implication is that the Fed’s bias is to raise them, most likely in December.
We might add that Donald Trump’s opinion notwithstanding, the Fed’s decision—with a surprising three dissenting votes—was almost certainly politically motivated, with the nation’s central bankers not wishing to infuriate the outgoing Obama Administration by raising rates now, obliterating the stock market and ruining Hillary Clinton’s chance at victory. In other words, both Trump and the Maven know full well that this particular Fed is more politicized than is generally the case. The general politicization of nearly everything by Washington over the past eight years, BTW, is largely why the U.S. economy is still mired in the mud and likely to stay there.
Wednesday’s rally is likely to continue for at least the first half of the day on Thursday. We’ll be back then with the latest.