Stocks fell while the dollar gained on speculation the FOMC will boost rates this year as the economy strengthens. Treasuries rose and oil plunged under $45/barrel.
The Fed boosted its assessment of the economy stating growth is “solid” versus moderate and labor market as “strong.” Because of the decline in oil, the FOMC expects inflation to decline further. It is overwhelmingly evident officials are confronting divergent economic forces as the Committee weighs the timing of the first interest rate increase since 2006.
The Fed also acknowledged global risks saying it will take into account readings on “irrational developments,” a phrase I think encapsulates today’s macroeconomic environment.
Generally speaking the statement was slightly hawkish with many viewing a late spring interest rate hike as inevitability as I think the Committee barely held onto the word “patience.”
As noted above stocks fell and the dollar gained. All must remember markets historically decline between 7% and 10% when the Fed tightens monetary policy, a decline that may be exacerbated by a stronger dollar hindering results of the multinationals.
Referring back to the term “irrational developments,” what a great term to describe today’s geopolitical and macroeconomic environment. The inmates are running the Greek Asylum. In my view there is little difference between President Putin’s and President Obama’s attitudes. One is thumbing his nose with increasing intensity at the west and the other at a newly elected legislature. Then there is oil which is now at the levels thought unfathomable just six weeks ago, levels that are threatening the very existence of countries.
And what about the Middle East which in my view is about to implode; the latest chapter is Israel at the brink of an all-out conflict with Hezbollah.
I think few will disagree that in the absence of leadership, anarchy will occur.
Are we now missing the days when the greatest issue was the name Redskins?
What will happen today?
Last night the foreign markets were mixed. London was down 0.27%, Paris up 0.24% and Frankfurt up 0.17%. Japan was down 1.06% and Hang Sang down 1.07%.
The Dow should open moderately higher, the result of several strong earnings reports, following the worst two day selloff in over a year. Seventy percent of the 158 companies from the S & P 500 have beaten analysts’ estimates while 56% have topped sales projections according to Bloomberg. The 10-year is off 6/32 to yield 1.74% and oil is essentially unchanged.
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