For over a year I have maintained that the FED will not raise interest rates in any meaningful way. For instance, Why The FED Will NOT Be Raising Rates Next Year
With that in mind, something interesting became apparent late last year. The FED’s End Game Is Finally Unveiled.
Allow me to summarize: The FED is stuck somewhere between massive deflationary pressures and asset bubbles (in most markets). As a result, they unable to raise interest rates nor stimulate further. Interest rates are already at ZERO and additional QE might not work.
That is forcing the FED to use all tools necessary, mostly their tongues at this stage, to keep the market within a certain range. So, if the market sells-off, as it did in August and January, the FED will go out of their way in being more “dovish”. Preventing a collapse and pushing stocks higher.
But they don’t want the market too high. Should the market accelerate higher from this point on, they will be dealing with a bubble and subsequent collapse. And as my theory goes, the second the market recovers, as is the case today, the FED will become more “hawkish”. Again, to maintain the market within a certain trading range. (Now, don’t ask me what the purpose of the above exercise is – I have no idea. The eventual decline/collapse is now a certainty).
And that makes today incredibly important. Should the FED issue a more “hawkish” statement, I believe the theory above will be proven without a shadow of a doubt. Wait and see.
