Jack Ablin
Jack Ablin
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Over the last four years the Fed has played the part of a surrealistic painter, creating a dreamy backdrop with generously low interest rates.
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We're still getting more negatives on the economic front today, and this is a period where we're really looking for economic growth to avoid a Fed rate cut.
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I don't view the market as risky or dangerous even in spite of more Fed tightening. We have enough value in U.S. and international growth stocks. What's holding stocks back right now is uncertainty about interest rates, not valuation.
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What I worry about is that if the Fed continues to tighten, they could commit the same error they have done every time since 1980 and cause a financial crisis.
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But the key here is really going to be guidance. Everyone is looking for signs of the rolling over of profit growth, although not as much as the Fed or higher energy prices might indicate.
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Right now, the transparency we had with (former Chairman Alan) Greenspan is gone. We're trying to get some semblance of which way the Fed is going to go.
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Confidence is slipping, manufacturing is slowing, and even with today's jobs report, the employment trend is still negative. The bet here is that the Federal Reserve will have to stop raising rates in order to keep the economy from sliding further.
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The world assumes the Fed will raise the rates by a quarter percentage point, that's a non-event. It's what the statement lays out about the pace of future rate hikes that will be important, because that's what people are thinking about. I think the inflation reports will also be pivotal next week.
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This lends some comfort to the situation. In spite of slight economic weakness, the Fed sees no need to change its strategy. It's also not going to shut down the economy too quickly.
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I would infer from the statement that the Fed is somewhat more sanguine on the economic recovery. Perhaps they believe that $55 oil prices are, at least for the time being, something of the past and that jobs are just improving at a moderate pace.
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It's increasingly believed among participants that the Fed will skip the next meeting, and possibly one more by the end of the year.
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Economists are expecting a gradual slowdown in economic growth paired with a slowdown in inflation. That will allow the Federal Reserve to wind up its rate-hiking campaign.
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We're certainly on solid footing on an economic front.
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We have some very ugly numbers. You can argue that the ISM is still backward looking, and maybe even the jobless claims, but eventually we're going to need some evidence that the economy is improving. We had a lot of enthusiasm coming from earnings, but the news today is a little bit of a slap in the face that we're not out of the woods yet.