- On Wednesday, the Federal Reserve did exactly what they did last year
- They waited until the last possible meeting to nudge the Federal Funds rate by 1/4 of 1%
- So now, after 2 years of tightening, the lower bound of the Fed’s range has gone from zero to 1/2 of 1%
- Now Janet Yellen said the Fed made this decision to lift rates because of its confidence in the U.S economy
- That is complete nonsense
- If the Fed were confident in the U.S economy, rates would be much higher than a half of a percent
- The Fed would have raised rates a long time ago and by much more than this
- In fact, they could have lifted rates by more than 25 basis points on Wednesday
- Yet, they had so little confidence in the economy that this is what they did
- In fact, I believe that the only reason the Fed raised rates this December
- Is the same reason they did so last December: they did it despite having no confidence in the economy
- But they didn’t want to send a message that they were that worried, so they raised interest rates by the smallest possible amount
- And they also did it to try to preserve their credibility when it comes to talking about future interest rates
- Think about one half of one percent
- When Alan Greenspan slashed interest rates in the aftermath of the September 11 disaster and the bursting of the dot com bubble
- When the stock market was plunging and the economy was in recession, he was so worried about the economy that he lowered rates down to 1%
- Now Yellen is so confident in the economy, the highest she’s willing to raise them is 1/2 of 1%?
- This is half of where they were lowered in panic by Greenspan?
- So the fact that rates are only 1/2%, what does that tell you about the true confidence that Janet Yellen and the rest of the Federal Reserve have in the U.S. Economy?
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