No sane business person is going to invest their hard earned to make Government or Banks rich no matter how many of them tell us we should, Adam Smith was very clear about this, we do it because of self interest. With rates moving higher, a few investors think bonds are more attractive than stocks.
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It that sounds familiar, that’s because it is.
Those are the same problems the US has now. But he shifted awkwardly from emphasizing weak inflation – and therefore an inclination not to move – to focusing on the cumulative strength of the economy, and thus the need to get rates higher.
The last thing the world needs right now is a stronger dollar but that’s exactly what it looks like getting. The Fed views 2 percent as a healthy level for core inflation increases. Having repeatedly prepared the world for an interest rate rise they suggested was around the corner, policymakers at the US central bank are now bending over backwards to attempt another graceful about-face.
Would you rather buy a German 10-year bond that pays 0.5 percent or a USA 10-year bond that pays 2 percent? Nearly three weeks before the September meeting, told CNBC “it’s early to tell” whether the Fed should raise rates on that occasion.
The euro rose to $1.1059 around 2100 GMT from $1.1016 at the same time Friday.
Kohli also acknowledged that with the economic recovery several years old now, the Fed must also prepare for another risk – a potential economic slowdown.
Richmond Fed President Jeffrey Lacker heeded Yellen’s call to wait with rate hikes for more clarity that inflation was firming, breaking ranks with her only just last month.
“A weaker dollar is strongly positive for emerging markets because their external debt burden becomes more manageable and commodity prices tend to do better”, he said. Insofar as the dollar went up because the ECB’s printing presses were gearing up, it could be a wash. If that were the case, though, long-term interest rates would be rising.
Co-authors John Williams and Thomas Laubach estimated in a newly revised study that the rate has fallen sharply since the recession began in December 2007 – reaching minus 0.2 percent in the first half of 2015 – and shows no sign of recovering toward its pre-recession level of 2 percent.
There are lots of other reasons the Fed probably won’t raise rates this week. He says even if the Federal Reserve does raise rates, monetary policy conditions in 2016 could be even “easier” than they are now with the rate at zero if the European Central Bank and Bank of Japan boost stimulus. How many servings of baklava would you have to promise to give someone tomorrow to get them to give up one piece today (assuming they were certain you’d deliver)?
Generally speaking, investors with long time horizons and a disciplined, diversified investment approach have been rewarded with returns that enable them to grow wealth and preserve capital faster than the rate of inflation, even after the deduction of taxes, fees and transaction costs.
While WallStreet, and the financial media, continue to push individuals into the casino to increase revenues, what is ultimately forgotten is that stocks are ownership units of businesses. Not even Ben Bernanke, a former academic who like Yellen valued consensus, appears to have conferred as much on so regular a basis. China’s latest policy moves are encouraging but may not offer enough reason for a Fed change.
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Meanwhile, concerns that Chinese economic growth may be stalling, a scenario that certainly won’t help already-low global commodity prices, haven’t abated since September. And it would also mean a bigger trade deficit at a time when the recovery is starting to look a little wobbly.
