The Fed sounds like they have everything under control.
Pausing rate hikes, no recession (officially) yet, and inflation is tamed.
From a basic perspective, everything is awesome, just like the Lego Movie theme song.
Or so it seems.
The Fed decided to keep rates steady yesterday at their June meeting.
This was met with a short dip in the market, but an overall sleepy response.
That’s because the broad market is buying the everything is okay line… for now.
News flash, it’s not how the game the Fed is playing ends. It never has, in the modern history of rate hikes, and this time is likely not different.
That’s just not going to be the case.
And it’s because the Fed is making the same mistake they have always been…
The Fed doesn’t have a clue.
This market is set to nosedive and it’s going to be a historic drop.
Are you prepared? Are you ready for that to hit your portfolio?
I’m not saying I’m going to time it perfectly. We are not always going to make money.
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They react too late.
It’s not their fault, they track delayed data, like GDP and inflation.
It takes weeks, sometimes months, before the underlying weakness they track starts to show up.
It’s happening now and will happen again.
Look, what the Fed is doing, with interest rates currently at 5% to 5.25% compared to near 0%, what, a year and a half ago. February 2022 to be exact, rates were still pegged at 0% to 0.25% after the pandemic hit.
And that’s the same range rates were at after the global financial crisis until they began to slowly rise in October 2015.
Higher interest rates are done for one reason and one reason only, to tighten the economy.
What happens when the economy tightens?
We enter a recession, or depression.
It’s the whole purpose of adjusting the rates like they have.
Right now, it is done to tame inflation. But the outcome is no different. It will take a severe recession/depression to rid the economy of the persistent inflation.
At least that’s how the Fed views.
The problem is inflation is already under control and has worked itself out after the pandemic sent shockwaves through various industries after the global shutdown.
Who would have thought there were going to be repercussions from that… Apparently not the Fed.
Alright, enough of a rant for today.
The bottom line is this, the Fed has always reacted late to adjust policy and this day and age is no different.
The Fed is pausing rates when they should have been cut in half by now, they will cut rates when it is clearly too late and the crash in the market and economy will already be underway.
I would be absolutely shocked if that is not the case for the first time in the last 40 to 50 years.
And my best advice to you is simple – join my premium research service, Bank It or Tank It ELITE.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE