Fed Approves 3 Short Term Interest Hikes With Gregory Daco, Jim Rogers
Guests: Greg Daco and Jim Rogers
The Income Generation With David J. Scranton
The reason is obvious when you consider the delicate state of our economy, as well as the financial markets, as well as the role the Fed has played in creating that delicate state. So in a sense, Powell is charged with landing an experimental aircrafts that was launched nine years ago, in response to the financial crisis. That’s when the Fed under then Chairman Ben Bernanke, embarked on what turned out to be a historically, unprecedented effort to jump starts the economy with Artificial Stimulus. Namely, buying up US treasuries and holding short term rates near zero. Those measures and others known as Quantitative Easing were still in place when Janet Yellen took over the Fed in 2014. But eventually the economy approved enough that she also inherited the job of tapering the program and starting the process of “Normalizing the Fed policy and its balance sheet once again”.
In other words, Yellen began preparing the artificial aircraft for landing. But it’s proven to be a slow process thanks to mainly to two factors. First, Quantitative Easing didn’t really work as well or should we say perhaps as quickly as the Federal Reserve would have liked. Americans’ who had been burned by two stock market crashes in less than ten years, were reluctant to start spending and borrowing again. Companies were slow to hire and wage growth remain stagnant. Number two (2); the stock market basically became addicted to Artificial Stimulus. Part of that is due to optimism over what Easing was supposed to accomplish. But, mostly it was due to one of those historically low interest rates.
They drove a lot of everyday investors up the risk curve, meaning into the stock market, simply by making other investment options appear less attractive on a relative basis, and even though the Feds stopped this bond buying program more than three years ago, the stock market has continued to be driven more by artificial factors than by Economic Fundamentals. First as I said it was the launch of QE programs similar to ours in various struggling European countries. Next of course with the election of president Trump, his promises to slash corporate taxes and create consistent 4% annual GDP growth were of course just music to Wall Street’s ears.
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