UNNERVING - Ok..so no surprise to see the Fed once again err on the side of caution as much as I would have liked for that to have not been the case. The worrying part for me is that with each passing meeting and each passing press conference, it feels like Yellen is less certain about what's going on and what will actually work to fix things. It's exceptionally unnerving and definitely gets me very worried about Fed credibility. When you read through the Fed statement, it really feels as though the Fed will never hike again. It's actually rather absurd.
MISGUIDANCE - And if you want me to cite a specific example, look no further than the part in the statement that says "In determining the timing and size of future adjustments....[the] assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Are you kidding me? "A wide range of information? Sounds like the first grade here! Thanks for the guidance guys.
OY VAY - So basically, from this statement, we can determine the Fed will only hike if all of those things it is looking at are amenable to a hike. And yet still, even if those things are all amenable to a hike, this doesn't exclude anything else that comes up under the sun going forward that it can pin as an excuse to keep holding. So basically, the Fed has kicked the can down the road yet again and has put in an order for the construction of an extension of that road. Two words for you....Oy Vay!
BIG PROBLEM - Now it's true....If the stock market likes the Fed decision, then all is fine in this artificially supported world. But if the market can't sustain this post FOMC rally, and if we start to roll back over below last week's low, all of a sudden, the Fed has a really big problem on its hands. I believe this is where we are headed and I have put my money on it. There has been increasing evidence that monetary policy can no longer prop sentiment and what better way to prove this point then to see risk come off after a decision like the one we saw on Wednesday.
THE BIGGER THEY ARE... - In Wednesday's analysis, I talked about why some bearish price action in AUDNZD on Tuesday was actually a bullish sign. Today, that same logic applies to the price action in stocks post FOMC. If stocks can't hold onto gains from this post Fed rally, and then go ahead and breakdown, then the initial wave of bullishness that was rejected, will only make the bearish case that much stronger. So for now, I welcome this post Fed surge, with the expectation that it stalls out in spectacular fashion and leads to a massive unwinding (healthy and necessary) of long exposure in US and global equities.
MISTAKE - Once again, I think it was a mistake to not at least signal a rate hike in December. If the Fed would have raised and stocks fell off, at least it would have been because of the positive message the Fed was sending the market. What's a lousy 25bps after all? C'mon people! But now when stocks fall (and they will), there will be no positive justification for the drop and it will actually be a lot scarier on the way down with the market feeling helpless, knowing there is no longer a central bank that can step in to come to its rescue. This is where we're at now. Of course, maybe I'm wrong....but I don't think I am.
REFRESHING DISSENTS - It's worth noting that there weren't one or two, but three dissents in the Fed decision. Three dissents! So if you think I'm crazy going off like I have today, just know that there were a nice amount of people over at the very institution I am critical of who probably feel exactly the way I do. I can't remember the last time there were three dissents in a monetary policy decision (2014 by the way). Fed Rosengren was a new one and it's actually interesting to see him in there as he has also expressed concern over asset bubbles and this is probably why he dissented. Amen to that! And let's be honest, we all now women think more clearly than us guys. So when you have two women dissenting, it's worth paying attention to. :)