Everyone that participates in the markets has an opinion about the Fed. An opinion about how their decision makers are doing, if it should be audited, or even whether the Fed itself should exist.
Of course, these opinions don’t really matter. What matters is what policy decisions the Fed will make, because it’s their decisions that drive interest rates, and rates affect stock and bond prices.
Stocks have performed exceptionally well since the financial crisis in 2009 because of Fed policy. We continue to see record highs in stocks as central banks around the world use similar tactics as our own Federal Reserve Bank.
Bond buying or quantitative easing (QE) ended in the U.S. last October and is now being used by Europe’s central bank. China’s central bank is intervening as their economy slows. And Japan’s central bank has been buying their own bonds for a couple decades.
But if market participants take central banks out of the equation, there seems to be little to cheer about.
At Dent Research, our editors have regular meetings to discuss market opinion, updated forecasts, and what risks we’re facing. Needless to say, no one in our most recent meeting had a cheery outlook for the economy, corporate earnrnings, or the market. Central banks are clearly the only thing driving this “bull” market.
That of course will be factored in to their decision to raise rates this year. Will the Fed decide that economic data is too weak to raise rates? Will they slightly change the language in their policy statement?
Janet Yellen stated after the last meeting that rates may rise as soon as the June meeting. She also hedged her statement by saying that if economic data worsened, the hike could be delayed.
So far market participants don’t believe a rate hike will happen anytime soon. Mixed economic data —including low wage growth, slowing GDP growth, and low inflation — will make it difficult for the Fed to justify a rate hike.
Will that stop them? Who knows. Maybe when they announce their policy decision tomorrow after today’s meeting they’ll give us some insight into the future.