Bill Sullivan
Bill Sullivan
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This is a continued negative reaction to Friday's employment report. More investors are realizing the Fed may tighten policy more aggressively than originally thought.
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If the economy continues to grow rapidly in March and April, (the Fed is) likely to raise that funds target again in May. So the market's been put on notice: Unless you see some overall moderation in economic activity, particularly in consumer spending, we're likely to see further tightening action down the road.
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The Fed is telling us today they want to stay ahead of the economic curve.
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It's almost a boilerplate meeting. At the last meeting there was widespread expectation that they would remove their pledge to maintain accommodative policy for 'a considerable period.' But the December employment figures made it very apparent that the job market continues to lag, and most observers have come to the conclusion that the Fed really does need to stay accommodative.
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Questions would arise over why the Fed needed to drop interest rates at this time. It would have raised fears that there was a train wreck coming in the financial system.
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The stock market was euphoric over the data reported -- taking it as a sign the Fed will not raise rates over the balance of the calendar year. Inflation remains tame and the economy continues to grow.
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And she listens better. We also have a very high level of love and respect for each other.
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Even though the rising pattern in borrowing costs is a form of restraint, it is being offset by a surge in equity wealth as the stock market records consistent gains.
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In our judgment, this pattern could be another exhibition of household balance sheet stress, as the shift would seem to suggest that a relatively small rise in 30-year rates apparently excludes a significant number of prospective home buyers from qualifying for mortgage credit.
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It is no coincidence that households found it more difficult to maintain current payment schedules just as the volume of refinancing activity began to dry up as the second half of the calendar year got underway,
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The lesson of the last half decade is the need to manage risk. In my judgment, the investing public is a lot more amenable to owning fixed-income securities now than at any time in the last 15 or 20 years.
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Compared to last year where I had to drive all the way to Canada and pay 40 dollars, this is wonderful. I walked in, it took about two and a half minutes for the whole procedure.
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The lack of such short-term borrowing thus far in the current cycle seemingly contradicts the notion that a brisk expansion is under way.
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This is a very fragile recovery process. It's been reliant on these low borrowing costs. If we remove them, we effectively deny the economy its support.