“The Fed Is Once Again Making A Policy Error”

Remember a few years back, in the midst of the U. S. QE programs, all the negative talk about how ‘the Fed would never be able to taper their bond buying?’ When Yellen & Co. successfully navigated that hurdle, the doomsayers moved over to, ‘raising rates will be a disaster for the U. S. economy.’ Well, a year and a half later (and after two hikes), the world has not ended. Faced with these two defeats, the chicken little crowd has adopted a new motto. ‘The Federal Reserve will never be able to reduce their balance sheet,’ has now become the war cry for those of bearish persuasion.
At times during Yellen’s tenure, I have become concerned when the Federal Reserve tightened too quickly. When the Fed’s rhetoric pushed the U. S. dollar higher at a destabilizing rate, or when the tighter American policy caused oil to crash, I warned the Federal Reserve did not seem to realize their policies’ effect on the rest of the global financial system. I know the U. S. dollar is the world’s reserve currency, and yet the Federal Reserve tunes monetary policy for American economic conditions, but there can be no denying the Fed’s relatively hawkish path (especially when compared to other Central Banks), has caused a great degree of stress throughout the world.
But here we are; two hikes under the Fed’s belt, the front end of the yield curve pricing in another two for the remainder of the year, and FOMC members introducing plans for a balance sheet wind down. Who’d thunk the S&P 500 would be within spitting distance of all time highs after all of that?

This post was published at Zero Hedge on Apr 12, 2017.