Tags: federal reserve | janet yellen | economy | rates

Is Yellen's Freudian Slip Showing After Janet's Slip of the Tongue?

By    |   Thursday, 07 May 2015 07:04 AM

The convoluted sport of Fed watching had a big day on Wednesday. It appears that Fed Chair Janet Yellen may have tipped her hand on the possibility of a rate hike in the near term.

Yellen was quoted as telling IMF Managing Director Christine Lagarde on Wednesday the following: “I would highlight that equity valuations at this point are generally quite high.”

She went on to say that “there are potential dangers there.” Consider that Fed Chairs rarely talk about the market directly, and usually go out of their way not to.

At the same time, stocks prices aren’t really all that high.

Why would someone whose words are always notoriously guarded so deliberately and clearly talk down the market?

If a rate hike was coming any time soon it wouldn’t be necessary to try to temper stock prices.

The rate hike would do that. In fact, if a rate hike was coming the last thing she would want to do is risk throwing still more cold water on the market.

These brashly targeted comments only make sense in the context of no rate hike. From the Fed’s point of view there are risks to raising rates and risks to not raising them.

A chief risk of not raising rates is that low interest rates chase too much money into stocks, raising prices too high and creating a bubble.

The fact that Janet Yellen is out there actively assuaging the possible negative repercussions of not raising rates is, in my opinion, the clearest indicator of her thinking on the matter that we have seen yet.

She might as well have said “I have no intention of raising rates in June and probably not in September either.”

I have changed my view on an interest rate hike.

In lieu of Yellen’s comments, I now believe that a rate hike will not come until the end of the year at the earliest and maybe not even this year at all. That’s probably good news for stocks for the rest of the year, but an ominous sign longer term.

It was easy for the Fed to involve itself in the economy. I will be infinitely tougher for it to pull out. Raising the discount rate 0.25% (from the current 0.25%) after six years of recovery should be easy for a central bank capable of honing its influence.

The fact that the Fed is finding this first baby step to be too difficult and unpopular bodes very ominously for its ability to make necessary, but unpopular, choices in the future.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
TomHutchinson
The convoluted sport of Fed watching had a big day on Wednesday. It appears that Fed Chair Janet Yellen may have tipped her hand on the possibility of a rate hike in the near term.
federal reserve, janet yellen, economy, rates
426
2015-04-07
Thursday, 07 May 2015 07:04 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved