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Tags: inflation | Federal Reserve | debate | rates

Falling Commodity Prices Stir Inflation Debate Before Fed Meeting

By    |   Friday, 11 September 2015 06:35 AM

With the Dow up about 150 points on a relatively uneventful day, commentators continued to speculate about what the Fed is likely to do next week. Larry Hatheway, Chief Economist of GAM, pointed to low inflation around the world due to deflation in oil and other commodities as a leading factor influencing central banks. Susan Li referred to longstanding predictions that inflation would become a problem as a result of all the QE being employed by central banks. Hatheway countered that little lending actually took place. This writer has come to suspect that lending is sluggish for the very reason that the government has come to dominate the economy.

John Carey, EVP & Portfolio Manager at Pioneer Investments, said the Fed “has been sending mixed signals and needs to show the markets the gumption to raise rates,” but this would only be “to send a signal to markets that they’re ready to respond should the situation become extreme and they need to raise rates higher.” Martin Soong asked whether markets “have calmed down enough for the Fed to lift off on rates.” Carey responded that the Fed needs to plan for a downturn some years hence, “and it can’t reduce rates if rates are zero.”

Mark Olson, who has held many jobs, including Fed Governor and banking lobbyist, with whom this writer has disagreed, responding to the remarks by Larry Summers in the next clip, asserted that the Fed wants to signal a “return to normal” and by the end of the year, but he doubts the Fed will act next week unless it has “a pretty solid consensus,” given international volatility. Summers ticked off inflation, employment, and financial volatility, as indicated by the VIX, as all indicating to the Fed that “this isn’t the time to be moving.” When Sara Eisen mentioned optimistic outlooks of Jeffrey Immelt and David Tepper, Summers ticked off a list of unforeseen events like the Russian default that the authorities didn’t anticipate. His conclusion, which reminds this writer of Dana Carvey skits, is “It wouldn’t be prudent” to raise rates now.

Oliver Purshe, CEO of Bruderman Brothers, thinks “All this fixation with the Fed interest rate hike is kind of nonsense.” He predicts the fourth quarter will be “gangbusters” for the market.

Readers may want to save the classic presentation by Carter Braxton Worth, of Cornerstone Macro, in which he analyzes the recommendations of sell-side analysts. Worth concludes that the markets have moved beyond what the analysts have predicted, as stocks have worked through a pattern representing a “calm debate,” then a phase in which the debate was resolved to the downside, followed by the current “violent debate,” which he expects to be resolved violently to the downside. He took issue with the positive outlook of David Tepper, declaring, “I’m a seller.”

Looking at one of the other main topics, the behavior of oil markets, technician Rob Raymond, of RR Advisors, predicts that the current supply will be worked off and prices will rise.

Finally, Thursday will go down in history as the day the Justice Department announced a new initiative on white collar crime. Lawyer Andrew Stoltman recalled that DOJ had done nothing about criminal conduct on Wall Street, and he ridiculed the notion that now that the statute of limitations has run, DOJ is going to go after them, concluding, “It’s too late now.” Carol Roth called the announcement “political theater at its finest.” She suggested DOJ should turn its focus to accountability of government.

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With the Dow up about 150 points on a relatively uneventful day, commentators continued to speculate about what the Fed is likely to do next week.
inflation, Federal Reserve, debate, rates
Friday, 11 September 2015 06:35 AM
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