Few Comments on The Fed

I think we will likely see a different market reaction when the Fed next bumps the Fed Funds rate, which looks to be in June, assuming oil has bottomed (which I think it has) and that U.S. economic data remains solid (which I expect). Since they apparently have taken March off the table due to market volatility and the market pricing in very tepid inflation expectations (1.5% 10 years out), I think investors now probably believe they are going to be pragmatic, not dogmatic, about the need to “normalize”, and that they will continue to weight market-based signals reasonably in their deliberations. If so, a modest rate hike then will probably be taken to indicate that the US economy continues to strengthen and should not meet the same reaction as the widely believed premature tightening in December.

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